As a business leader, you understand the potential challenges that come with purchasing another business. The process may be going smoothly when—wham!—you hit a roadblock. Fortunately, there are steps that you can take to circumvent potential obstacles that come up when buying a business. One of the most important is to perform due diligence.
Due diligence is comprehensively evaluating all aspects of a business deal before reaching a decision. It can be applied to several different situations: Private equity funding or purchasing real estate, for example. Many people associate it with purchasing a business. That is because performing due diligence is one of the most important aspects of acquiring another company—and with good reason.
There are several important steps to complete during due diligence. When you are going through these steps, be sure to note any discrepancies that come up—they could be major red flags. The key to completing due diligence is to carefully follow through on each of these activities:
- Go through the company’s records and financial documents with a fine-tooth comb. Check for any documents that could indicate ongoing lawsuits or potential liability. (These two steps are best completed with the assistance of an attorney.)
- Visit the brick-and-mortar location. Evaluate the condition of the facilities and the equipment to see whether it is up to standards.
- Get to know the executives and the managers. Ask about their employment history and credentials. Also spend time talking to the employees, custodial staff and security guards—they can provide important information about the inner workings of the company.
- You may also want to hire a competent accountant and lawyer. An attorney in particular can assist you during the process of due diligence as well as any other business-related legal matters that arise in the future.