Business Due Diligence Process
Business Due Diligence Process
Buyer Due Diligence (DD) on a business (going concern) acquisition is the process of verifying that a prospective buyer is purchasing what he THINKS he is purchasing, and that the information he has been provided thus far by brokers and sellers is accurate within a reasonable degree of tolerance to the buyer. Due to serious concerns about confidentiality, disruption of current and future business, and time and expense, in depth DD is generally conducted after a binding agreement is in place and earnest money has been provided. Earnest money is refunded only if specific contingencies cited in the agreement are not met, (such as financing) or if due diligence uncovers material facts in dispute with the prior representations on which an Offer, or at least an LOI (letter of intent) was based.
Some degree of exploration and analysis of the business, its viability, its fit with the buyer prospect’s experience, skills, and financial resources should begin the minute a buyer starts considering the opportunity. No one in the process wants to waste time, money and energy on a deal that cannot or will not happen. Many times the exploration process will not get past the first look at the offering prospectus or first meeting, as one side or the other recognizes this deal is not mutually beneficial. If there are brokers or alternative advisors representing the buyer and seller, he or she will understand the buyer’s need for information to make a decision, and also the need to respect the seller’s confidentiality. So, the process will go step by step with additional information provided as a buyer is apparently more qualified and serious. This article focuses on the DD that will occur when a buyer gets past the initial stages and has come to some terms with the seller.
Once there is an agreement in place, DD is a mandatory step in purchasing any business. Put simply, a buyer must do his homework, and know precisely what he is buying. This may be relatively painless with an honest seller and well organized business, presented by a professional broker. But, it can be a trying process, especially if a business is not well organized, the seller has something to hide, and/or a buyer is not both reasonable and prepared for the investigation. Buyers are encouraged to engage the assistance of a CPA with some small business experience to make the process far more efficient and productive. In depth due diligence is not a ‘free look period’ in which a buyer can decide if he likes or does not like “anything at all” about the business. Extensive DD simply cannot occur with every prospect on a business. The seller cannot be asked to commit the kind of time and energy, and expense for advisors, potential exposure to employees, vendors and customers required for due diligence of his ongoing business unless a buyer is committed to the purchase. Measurable contingencies and due diligence requests should be precisely listed at the outset of the process, often in the LOI or Offer document, or through the provision of a DD list.
The objective is to ensure the buyer gets all the material facts required to make a fully informed decision and assessment of the true condition of the business while not disrupting the seller’s business unduly. To this end, timing is critical. Generally, a buyer has 2-3 weeks to accomplish this process while working around the schedules of the seller, the seller’s accountant, and their own accountant. It is best to work out some type of planned schedule in advance so everyone’s expectations are met and we do not have disagreements or unnecessary delays.
Pre-Offer or LOI, most buyers will already have obtained and reviewed financial statements and tax returns in order to define the price and terms that will work for the deal. If not, this is step one. Many businesses require outside financing, and no deal will take place without this, so at least a loan proposal is commonly required before any other DD that involves the seller’s time begins. If a lender is providing financing, the buyer essentially has a secondary DD partner; the lender will be conducting their own DD, and they generally have a lot of experience with this. Financials will be analyzed, and the fact that the tax returns were indeed filed and accepted by the IRS will be verified by the lender.
Once a buyer has a loan proposal, or even better, a loan commitment, the parts of due diligence that open the seller up to exposure and potential business damage, can begin. If there are any other major contingencies, these should be tackled next. For example, insurance is an issue for many businesses—workers’ comp, liability, fleet, contractors’. It is often best to start with the current providers, but only with the seller’s permission and even an introduction. Financial DD should be scheduled during this time, as it will generally entail coordinating meetings with several people. Often the best route is to have the seller’s CPA meet with the buyer’s CPA, with any information not available at the CPA’s office to be provided by the seller. If the seller’s accounting records are available via QuickBooks or Peachtree Accounting, and do not contain the type of proprietary info that should not be handed over until closing, the buyer will have the luxury of looking at the accounting records at their own leisure. Otherwise, this may be done with some restrictions in the accountant’s or seller’s office. If any reports, customer or vendor accounts appear unusual in any way, a paper trail can be followed to track orders, billings, deposits, etc. Financial DD on most small businesses can be accomplished in 1-2 days of focused work if everyone co-operates.
The closing attorney or buyer’s attorney will do a lien and law suit search, and work with the seller to clear any old liens that may be incorrectly showing as active. Other liens will generally be cleared at Closing with payments made directly to lenders or creditors by the Closing attorney with funds from the transaction. If any problems are uncovered, the buyer will be informed.
Employment, asset, and operations questions not answered prior to DD should be addressed to the seller and/or their broker for responses. This is sometimes done in an interview session, or simply via e-mail, fax, etc. If the business has sellable inventory, this will need to be counted or the final amount being purchased somehow agreed-upon. The method needs to be decided ASAP so that an outside firm can be retained if needed. The inventory value should be finalized the night before closing. Often a “last minute” adjustment cannot be made within the third party loan amount, so the parties need to decide how adjustments to the estimated inventory will be handled.
If there are key employees or customers that must be interviewed prior to closing, these meetings will only take place when all other contingencies have been met, unless the seller has already informed these people in advance of his intentions. The seller does not want the potential of a major change to disrupt his business unless the deal is virtually certain to close. The seller does not want to have to present a new person as the next owner of his business, only to have to “take it back” next week. Generally, employees find out that a business has a new owner after closing at a meeting, with refreshments. The new owners and the seller reassure the employees that THEY are the reason for the success of the business, and are very much wanted and needed by the new owners. If the new owner treads slowly in making major changes, most often all employees will stay on, as they have no reason to leave a job that they need and like, and lose their source of income. Buyers should have time to evaluate all employees in the working environment before deciding to terminate existing staff, especially since often times the new owner does not know how to run the business without those employees.
Customers of a business are typically only concerned about one thing: are their needs being met? They do not care if Joe or Sam owns the business, so long as your plans do not upset their prior working relationship with the business. Quality, service, on-time, at the price they were quoted, etc. is why they deal with the business in question. If there is an existing written contract, it may or may not be invalidated by a sale. Buyers should have their attorneys advise them as to the nature of the contract, with input from the seller. Many times, the contract will continue under new owners; or it may be assumable, or the buyer may need a new contract. If a new contract is required, the buyer clearly needs assurance that they can obtain a contract that can be signed “subject to” closing on the new business. Most businesses do not inform any of their customers about a change in ownership until after a sale. In fact, in order to ensure a continuity of relationships and a smooth transition, many sellers introduce their buyers as a “partner” who has begun working with them so that they can grow the business and better serve that customer’s needs. The seller remains in the background in case of any questions, and soon the customers are just as comfortable with the new owner as they were with the old owner . . . because their needs are being met!
The buyer also has many “transitional” tasks that are not so much DD on the business as set-up requirements to ensure that the business will run smoothly the day after closing. These often involve an accountant and/or attorney who assists with the establishment of a new legal entity to purchase and hold the business assets, and all related tax ID’s, licenses, bank accounts, etc. The seller and broker will also be a good resource for what accounts need to be contacted to ensure continuity of services, utilities, and purchases for the going concern.
During due diligence, buyers may find some inconsistencies with what they previously were told or understood, or perhaps some anomalies in the business records. Naturally, these must be questioned, but a buyer should not over-react and assume this is fatal to a deal. Communication errors can and do occur with many parties to a deal, and small businesses often have “do it yourself” bookkeeping, which can lead to some interesting issues. However, many of these can be resolved. Neither principal should over-react to a DD hurdle or there will be no deal, and neither party gets what they want. Buyers and their advisors should speak with the seller and their advisors about their concerns so that the problems can hopefully be addressed. If a business turns out not to be as originally presented in terms of revenue, profits, personnel, contracts with customers, or assets—factors which affect the value of a business—then a renegotiation of price and terms will often be called for. On the other hand, no business is perfect (as the cliché goes) and a buyer cannot expect to renegotiate based on a non-material difference. Normally, both sides of the deal will have spent a lot of time, energy and money getting to this point, and will have a true desire to make the deal work.
Two different sample due diligence lists are attached for your consideration. As a buyer, you and your advisors should come up with a list that will satisfy your concerns, at a level appropriate to you and to the specific business. Take into consideration the systems in the business and the reasonableness of your requests. The seller and broker will need to be consulted as to when and how your list will be addressed. The parties should devise an actual schedule of meetings to meet the DD deadlines defined in the purchase agreement. If all goes well, and everyone’s expectations are fairly met, you should have a deal!
NOTE: BROKERS DO NOT WARRANT ACCURACY OR COMPLETENESS OF FINANCIAL OR BUSINESS INFO PROVIDED BY SELLERS. CONSULTKAP RECOMMENDS THAT ALL PARTIES TO BUSINESS TRANSACTIONS SEEK APPROPRIATE FINANCIAL, LEGAL, ACCOUNTING, AND TAX ADVICE FROM PROFESSIONALS IN THESE FIELDS. PROSPECTIVE BUYERS OR USERS OF INFORMATION PRESENTED BY BROKERS ARE RESPONSIBLE FOR THE PERFORMANCE AND THE EXPENSE OF DUE DILIGENCE REVIEW PRIOR TO ANY FINANCING, MERGER OR ACQUISITION CONSIDERATIONS.
IF YOU NEED REFERENCES FOR PROFESSIONALS TO ASSIST YOU, WE ARE HAPPY TO PROVIDE THEM.
Kathryne A Pusch,
Broker, President
ConsultKAP, Inc.
3115 Woodchuck Way, #101
Conyers, GA 30094
770-918-9390 770-918-9958 FAX
kap@Consultkap.com www.consultkap.com
Buyer’s Due Diligence Checklist #1(asset sale)
1. Verify income tax returns have been filed and accurately reflect previously analyzed financial statements. Verify that there are sensible explanations for any material differences in income and expense categories between the tax return & financials.
2. Review A/P & A/R aging reports for unusual accounts or patterns. Review status of any customers with large balances due.
3. Verify State Sales Tax payments are up-to-date. Ensure buyer has Federal EIN & GA Taxpayer ID number, plus sales tax account if needed.
4. Verify Workmen’s Comp payments and any other insurance plans are up-to-date. Ensure buyer obtains Workmen’s Comp and all other necessary insurance—fleet, liability, property, fire, etc.
5. Determine physical inventory to establish existence & condition of inventory—you count, you hire counters? (Just before Closing) Funds need to pay for positive adjustment?
6. Review equipment & maintenance records to ensure that required maintenance has not been put off to dress up earnings pre-sale.
7. Obtain seller assurances that all liabilities secured by equipment have been fully disclosed. Verify with lien search.
8. Obtain seller assurance that obligations under any contracts of the company have been disclosed. Review any company contracts for potential liabilities or future payments.
9. Check employee vacation accruals and scheduled pay increases for future. Determine who is liable for any bonuses or vacations and how compensation occurs. Any employee contracts required?
10. Contact administrators of any company payroll, health insurance, or retirement plans to establish new accounts. Other vendor accounts that need transfer or set up?
11. Assess the likelihood of undisclosed miscellaneous liabilities, and obtain general representations & warranties by the Seller in that there are no known undisclosed or contingent liabilities.
12. Conduct a UCC Filing Search under the official name of the business and all DBA’s. (Closing Atty generally does this)
13. Conduct a public records search in the local county court records to uncover undisclosed liens or litigation. (Closing Atty generally does this)
14. Review, assume, obtain new Lease for premises. Meet with Landlord & get Lease executed.
15. Obtain new bank account(s) –requires Corp. Entity docs- and credit card processing, plus business license(s).
This is just a basic list with those items most commonly done. Buyer is responsible for assuring their own due diligence is done to their satisfaction, and at their expense. Broker is not able to give legal or accounting advice.
Due Diligence Checklist # 2
Following is a common list of the information needed for a more thorough Due Diligence. Some of the information may not be applicable to a specific business. Some of the information will be obtained through examination of the data on-site, through the business accountant, or it could be provided directly by the seller via interview or written response. Buyers should always take into consideration the capabilities and systems of the business and its owners when requesting information.
Personnel
1. Methods and levels of pay for employees
2. Bonus and incentive pay plans
3. Pension and deferred compensation plans-Contact info for administrators
4. Vacations entitlements
5. Benefits programs – automobiles, personal loans, insurance, …
6. Recent payroll report—payroll company or employee leasing? Contact info
7. Resume or job description of each employee and reporting structure
Operations
8. Agreements with insurance companies, suppliers, customers, vendors, service providers, and others.
9. Description of procedures or functions… operations manual, copy of any forms used available?
10. Systems/reports used to manage the business
Marketing & Sales
11. Competition -advantages and disadvantages
12. Pricing policies
13. Copy of any agreements with major customers
14. Trade names held
15. Forecast of market growth and company sales growth
16. Details or advertising and promotions campaigns
17. Warranty /guarantee provisions for past sales
Accounting Records
18. Financial statements for last three FY’s
19. Quick Books/Peachtree company file available?
20. Copy of Bank statements and copy of checks– only if need to verify items.
21. Tax return for last three years
22. History of changes in accounting policies
23. Current accounts receivables & accounts payable aging
24. History of bad debts
25. Details of any unusual payment arrangements with anyone-vendors, employees
26. Asset lists and records for fixed assets & inventory—counting and valuation methods.
27. Dates and results of any federal, state, and local tax audits.
General
28. Listing and assessment of past, pending, and potential litigation
29. Details on insurance coverage and history of losses covered by insurance
30. Banking relationships
Land, Building, & Assets
31. Any description and valuation data on building if being sold
32. Information on any environmental issues, recent Phase I?
33. List of all vehicles – year and model, market value, current mileage
34. Equipment list w/ market value—any leased equipment? Can it be paid off or assumed?
35. Any assets need to be replaced soon? Are any assets used in the business not owned by the business? (owned by you personally, by employees)
36. Capital expenses/major maintenance –capital expenses and major maintenance expenses currently needed or reasonably expected to be needed in the next year
37. List of all website URL’s, e-mail addresses owned/used by business
38. List of all patents, licenses, other intangibles
39. Lease on premises—assumable or new lease required. Landlord contact OK? Contact info.
Business Due Diligence Process - To learn more about this author, visit Kathryne Pusch's Website.
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Due Diligence Considerations, Process & Timing
Buyer Due Diligence (DD) on a business (going concern) acquisition is the process of verifying that a prospective buyer is purchasing what he THINKS he is purchasing, and that the information he has been provided thus far by brokers and sellers is accurate within a reasonable degree of tolerance to the buyer. Due to serious concerns about confidentiality, disruption of current and future business, and time and expense, in depth DD is generally conducted after a binding agreement is in place and earnest money has been provided. Earnest money is refunded only if specific contingencies cited in the agreement are not met, (such as financing) or if due diligence uncovers material facts in dispute with the prior representations on which an Offer, or at least an LOI (letter of intent) was based.
Some degree of exploration and analysis of the business, its viability, its fit with the buyer prospect’s experience, skills, and financial resources should begin the minute a buyer starts considering the opportunity. No one in the process wants to waste time, money and energy on a deal that cannot or will not happen. Many times the exploration process will not get past the first look at the offering prospectus or first meeting, as one side or the other recognizes this deal is not mutually beneficial. If there are brokers or alternative advisors representing the buyer and seller, he or she will understand the buyer’s need for information to make a decision, and also the need to respect the seller’s confidentiality. So, the process will go step by step with additional information provided as a buyer is apparently more qualified and serious. This article focuses on the DD that will occur when a buyer gets past the initial stages and has come to some terms with the seller.
Once there is an agreement in place, DD is a mandatory step in purchasing any business. Put simply, a buyer must do his homework, and know precisely what he is buying. This may be relatively painless with an honest seller and well organized business, presented by a professional broker. But, it can be a trying process, especially if a business is not well organized, the seller has something to hide, and/or a buyer is not both reasonable and prepared for the investigation. Buyers are encouraged to engage the assistance of a CPA with some small business experience to make the process far more efficient and productive. In depth due diligence is not a ‘free look period’ in which a buyer can decide if he likes or does not like “anything at all” about the business. Extensive DD simply cannot occur with every prospect on a business. The seller cannot be asked to commit the kind of time and energy, and expense for advisors, potential exposure to employees, vendors and customers required for due diligence of his ongoing business unless a buyer is committed to the purchase. Measurable contingencies and due diligence requests should be precisely listed at the outset of the process, often in the LOI or Offer document, or through the provision of a DD list.
The objective is to ensure the buyer gets all the material facts required to make a fully informed decision and assessment of the true condition of the business while not disrupting the seller’s business unduly. To this end, timing is critical. Generally, a buyer has 2-3 weeks to accomplish this process while working around the schedules of the seller, the seller’s accountant, and their own accountant. It is best to work out some type of planned schedule in advance so everyone’s expectations are met and we do not have disagreements or unnecessary delays.
Pre-Offer or LOI, most buyers will already have obtained and reviewed financial statements and tax returns in order to define the price and terms that will work for the deal. If not, this is step one. Many businesses require outside financing, and no deal will take place without this, so at least a loan proposal is commonly required before any other DD that involves the seller’s time begins. If a lender is providing financing, the buyer essentially has a secondary DD partner; the lender will be conducting their own DD, and they generally have a lot of experience with this. Financials will be analyzed, and the fact that the tax returns were indeed filed and accepted by the IRS will be verified by the lender.
Once a buyer has a loan proposal, or even better, a loan commitment, the parts of due diligence that open the seller up to exposure and potential business damage, can begin. If there are any other major contingencies, these should be tackled next. For example, insurance is an issue for many businesses—workers’ comp, liability, fleet, contractors’. It is often best to start with the current providers, but only with the seller’s permission and even an introduction. Financial DD should be scheduled during this time, as it will generally entail coordinating meetings with several people. Often the best route is to have the seller’s CPA meet with the buyer’s CPA, with any information not available at the CPA’s office to be provided by the seller. If the seller’s accounting records are available via QuickBooks or Peachtree Accounting, and do not contain the type of proprietary info that should not be handed over until closing, the buyer will have the luxury of looking at the accounting records at their own leisure. Otherwise, this may be done with some restrictions in the accountant’s or seller’s office. If any reports, customer or vendor accounts appear unusual in any way, a paper trail can be followed to track orders, billings, deposits, etc. Financial DD on most small businesses can be accomplished in 1-2 days of focused work if everyone co-operates.
The closing attorney or buyer’s attorney will do a lien and law suit search, and work with the seller to clear any old liens that may be incorrectly showing as active. Other liens will generally be cleared at Closing with payments made directly to lenders or creditors by the Closing attorney with funds from the transaction. If any problems are uncovered, the buyer will be informed.
Employment, asset, and operations questions not answered prior to DD should be addressed to the seller and/or their broker for responses. This is sometimes done in an interview session, or simply via e-mail, fax, etc. If the business has sellable inventory, this will need to be counted or the final amount being purchased somehow agreed-upon. The method needs to be decided ASAP so that an outside firm can be retained if needed. The inventory value should be finalized the night before closing. Often a “last minute” adjustment cannot be made within the third party loan amount, so the parties need to decide how adjustments to the estimated inventory will be handled.
If there are key employees or customers that must be interviewed prior to closing, these meetings will only take place when all other contingencies have been met, unless the seller has already informed these people in advance of his intentions. The seller does not want the potential of a major change to disrupt his business unless the deal is virtually certain to close. The seller does not want to have to present a new person as the next owner of his business, only to have to “take it back” next week. Generally, employees find out that a business has a new owner after closing at a meeting, with refreshments. The new owners and the seller reassure the employees that THEY are the reason for the success of the business, and are very much wanted and needed by the new owners. If the new owner treads slowly in making major changes, most often all employees will stay on, as they have no reason to leave a job that they need and like, and lose their source of income. Buyers should have time to evaluate all employees in the working environment before deciding to terminate existing staff, especially since often times the new owner does not know how to run the business without those employees.
Customers of a business are typically only concerned about one thing: are their needs being met? They do not care if Joe or Sam owns the business, so long as your plans do not upset their prior working relationship with the business. Quality, service, on-time, at the price they were quoted, etc. is why they deal with the business in question. If there is an existing written contract, it may or may not be invalidated by a sale. Buyers should have their attorneys advise them as to the nature of the contract, with input from the seller. Many times, the contract will continue under new owners; or it may be assumable, or the buyer may need a new contract. If a new contract is required, the buyer clearly needs assurance that they can obtain a contract that can be signed “subject to” closing on the new business. Most businesses do not inform any of their customers about a change in ownership until after a sale. In fact, in order to ensure a continuity of relationships and a smooth transition, many sellers introduce their buyers as a “partner” who has begun working with them so that they can grow the business and better serve that customer’s needs. The seller remains in the background in case of any questions, and soon the customers are just as comfortable with the new owner as they were with the old owner . . . because their needs are being met!
The buyer also has many “transitional” tasks that are not so much DD on the business as set-up requirements to ensure that the business will run smoothly the day after closing. These often involve an accountant and/or attorney who assists with the establishment of a new legal entity to purchase and hold the business assets, and all related tax ID’s, licenses, bank accounts, etc. The seller and broker will also be a good resource for what accounts need to be contacted to ensure continuity of services, utilities, and purchases for the going concern.
During due diligence, buyers may find some inconsistencies with what they previously were told or understood, or perhaps some anomalies in the business records. Naturally, these must be questioned, but a buyer should not over-react and assume this is fatal to a deal. Communication errors can and do occur with many parties to a deal, and small businesses often have “do it yourself” bookkeeping, which can lead to some interesting issues. However, many of these can be resolved. Neither principal should over-react to a DD hurdle or there will be no deal, and neither party gets what they want. Buyers and their advisors should speak with the seller and their advisors about their concerns so that the problems can hopefully be addressed. If a business turns out not to be as originally presented in terms of revenue, profits, personnel, contracts with customers, or assets—factors which affect the value of a business—then a renegotiation of price and terms will often be called for. On the other hand, no business is perfect (as the cliché goes) and a buyer cannot expect to renegotiate based on a non-material difference. Normally, both sides of the deal will have spent a lot of time, energy and money getting to this point, and will have a true desire to make the deal work.
Two different sample due diligence lists are attached for your consideration. As a buyer, you and your advisors should come up with a list that will satisfy your concerns, at a level appropriate to you and to the specific business. Take into consideration the systems in the business and the reasonableness of your requests. The seller and broker will need to be consulted as to when and how your list will be addressed. The parties should devise an actual schedule of meetings to meet the DD deadlines defined in the purchase agreement. If all goes well, and everyone’s expectations are fairly met, you should have a deal!
NOTE: BROKERS DO NOT WARRANT ACCURACY OR COMPLETENESS OF FINANCIAL OR BUSINESS INFO PROVIDED BY SELLERS. CONSULTKAP RECOMMENDS THAT ALL PARTIES TO BUSINESS TRANSACTIONS SEEK APPROPRIATE FINANCIAL, LEGAL, ACCOUNTING, AND TAX ADVICE FROM PROFESSIONALS IN THESE FIELDS. PROSPECTIVE BUYERS OR USERS OF INFORMATION PRESENTED BY BROKERS ARE RESPONSIBLE FOR THE PERFORMANCE AND THE EXPENSE OF DUE DILIGENCE REVIEW PRIOR TO ANY FINANCING, MERGER OR ACQUISITION CONSIDERATIONS.
IF YOU NEED REFERENCES FOR PROFESSIONALS TO ASSIST YOU, WE ARE HAPPY TO PROVIDE THEM.
Kathryne A Pusch,
Broker, President
ConsultKAP, Inc.
3115 Woodchuck Way, #101
Conyers, GA 30094
770-918-9390 770-918-9958 FAX
kap@Consultkap.com www.consultkap.com
Buyer’s Due Diligence Checklist #1(asset sale)
1. Verify income tax returns have been filed and accurately reflect previously analyzed financial statements. Verify that there are sensible explanations for any material differences in income and expense categories between the tax return & financials.
2. Review A/P & A/R aging reports for unusual accounts or patterns. Review status of any customers with large balances due.
3. Verify State Sales Tax payments are up-to-date. Ensure buyer has Federal EIN & GA Taxpayer ID number, plus sales tax account if needed.
4. Verify Workmen’s Comp payments and any other insurance plans are up-to-date. Ensure buyer obtains Workmen’s Comp and all other necessary insurance—fleet, liability, property, fire, etc.
5. Determine physical inventory to establish existence & condition of inventory—you count, you hire counters? (Just before Closing) Funds need to pay for positive adjustment?
6. Review equipment & maintenance records to ensure that required maintenance has not been put off to dress up earnings pre-sale.
7. Obtain seller assurances that all liabilities secured by equipment have been fully disclosed. Verify with lien search.
8. Obtain seller assurance that obligations under any contracts of the company have been disclosed. Review any company contracts for potential liabilities or future payments.
9. Check employee vacation accruals and scheduled pay increases for future. Determine who is liable for any bonuses or vacations and how compensation occurs. Any employee contracts required?
10. Contact administrators of any company payroll, health insurance, or retirement plans to establish new accounts. Other vendor accounts that need transfer or set up?
11. Assess the likelihood of undisclosed miscellaneous liabilities, and obtain general representations & warranties by the Seller in that there are no known undisclosed or contingent liabilities.
12. Conduct a UCC Filing Search under the official name of the business and all DBA’s. (Closing Atty generally does this)
13. Conduct a public records search in the local county court records to uncover undisclosed liens or litigation. (Closing Atty generally does this)
14. Review, assume, obtain new Lease for premises. Meet with Landlord & get Lease executed.
15. Obtain new bank account(s) –requires Corp. Entity docs- and credit card processing, plus business license(s).
This is just a basic list with those items most commonly done. Buyer is responsible for assuring their own due diligence is done to their satisfaction, and at their expense. Broker is not able to give legal or accounting advice.
Due Diligence Checklist # 2
Following is a common list of the information needed for a more thorough Due Diligence. Some of the information may not be applicable to a specific business. Some of the information will be obtained through examination of the data on-site, through the business accountant, or it could be provided directly by the seller via interview or written response. Buyers should always take into consideration the capabilities and systems of the business and its owners when requesting information.
Personnel
1. Methods and levels of pay for employees
2. Bonus and incentive pay plans
3. Pension and deferred compensation plans-Contact info for administrators
4. Vacations entitlements
5. Benefits programs – automobiles, personal loans, insurance, …
6. Recent payroll report—payroll company or employee leasing? Contact info
7. Resume or job description of each employee and reporting structure
Operations
8. Agreements with insurance companies, suppliers, customers, vendors, service providers, and others.
9. Description of procedures or functions… operations manual, copy of any forms used available?
10. Systems/reports used to manage the business
Marketing & Sales
11. Competition -advantages and disadvantages
12. Pricing policies
13. Copy of any agreements with major customers
14. Trade names held
15. Forecast of market growth and company sales growth
16. Details or advertising and promotions campaigns
17. Warranty /guarantee provisions for past sales
Accounting Records
18. Financial statements for last three FY’s
19. Quick Books/Peachtree company file available?
20. Copy of Bank statements and copy of checks– only if need to verify items.
21. Tax return for last three years
22. History of changes in accounting policies
23. Current accounts receivables & accounts payable aging
24. History of bad debts
25. Details of any unusual payment arrangements with anyone-vendors, employees
26. Asset lists and records for fixed assets & inventory—counting and valuation methods.
27. Dates and results of any federal, state, and local tax audits.
General
28. Listing and assessment of past, pending, and potential litigation
29. Details on insurance coverage and history of losses covered by insurance
30. Banking relationships
Land, Building, & Assets
31. Any description and valuation data on building if being sold
32. Information on any environmental issues, recent Phase I?
33. List of all vehicles – year and model, market value, current mileage
34. Equipment list w/ market value—any leased equipment? Can it be paid off or assumed?
35. Any assets need to be replaced soon? Are any assets used in the business not owned by the business? (owned by you personally, by employees)
36. Capital expenses/major maintenance –capital expenses and major maintenance expenses currently needed or reasonably expected to be needed in the next year
37. List of all website URL’s, e-mail addresses owned/used by business
38. List of all patents, licenses, other intangibles
39. Lease on premises—assumable or new lease required. Landlord contact OK? Contact info.
Business Due Diligence Process - To learn more about this author, visit Kathryne Pusch's Website.
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Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Dianne CramptonDianne Crampton is an executive leadership coach, team culture consultant, author and president of TIGERS Success Series, Inc. Dianne has been helping CEO's and Executives connect their employees to their core values and goals for over 20 years using the trademarked TIGERS team culture process, which stands for trust, interdependence, genuineness, empathy, risk and success. To download a free white paper on behaviors that build strong teams and behaviors that will predictably tear them down go here. Dianne's contribution to the 2010 Pfeiffer Consulting Journal (an imprint of John Wiley and Sons Publishers) entitled TIGERS Hearted Teams is available in November 2009. Her new book TIGERS Among Us: 5 Winning Business Team Cultures And Why, Three Creeks Publishing will release in March 2010. To receive publishing discounts, subscribe to the free TigerTracks Newsletter here. - Visit Dianne Crampton's Website |
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David BarrDavid Barr is the President of Venture Opportunities, Inc. David has been a professional business broker/intermediary since 1980 focusing on General Business Brokerage and Mergers and Acquisitions representing client transaction value from $400,000 to $20,000,000. Mr. Barr has handled the sale of over four hundred and fifty companies. David earned a university degree from the State University of New York majoring in economics and business. David holds the Mergers and Acquisition Master Intermediary and the Certified Business Intermediary designations from the International Business Brokers Association. He is also a Senior Business Analyst and a Texas licensed Real Estate Agent. For more information about David and Venture Opportunities, visit www.bizdealmaker.com. - Visit David Barr's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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Casey GollanCasey Gollan, Business Coaching & Mentoring Programs. Add $1 Million to $10 Million in the next 1 to 3 years. Since 1996 Casey has to added hundreds of millions of dollars to businesses. Watch a free video see client results Business Coaching website. - Visit Casey Gollan's Website |
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Jeff FosterWebBizIdeas.com is a Minneapolis website design company founded to help people start an internet business by providing them with website, business, and internet resources that help foster the growth of successful online businesses and develop innovative Internet business ideas. We specialize in internet consulting & internet marketing. - Visit Jeff Foster's Website |
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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