Performing due diligence previous to closing on the purchase of a business is definitely crucial step in shopping for a business. Sadly, it can be a step that many small enterprise buyers approach haphazardly–or omit all together. Due diligence normally comes right after the client and seller reach a formal agreement on the sale of the enterprise–contingent on the findings of the due diligence review.

Listed below are the things you should embody in your due diligence when buying a business:

1.) Accounting. Small companies are notorious for keeping poor accounting records, so it is practically mandatory that you simply (or preferably an accounting professional) review the accounting records of the business to determine their accuracy and to uncover any problems.

2.) Site Inspection. Although you’ve got obviously visited the site of the business you’re buying, now could be the time to scrutinize the physical facets of the enterprise very closely. You need to take a detailed look at the equipment to make sure it is in good repair and capable of performing the tasks you are planning. It’s best to examine the building to make sure there will be no surprise repairs you will be liable for after you take possession. And, most importantly, you should decide the final condition of the workplace. A lot will be decided by the way the enterprise has operated up to now–is it well organized, away from trash, and an excellent working setting? Don’t skimp on this portion of your due diligence.

3.) Employees. If the business has workers, you likely will wish to retain most of the staff that come with the business with a purpose to keep continuity. This can sometimes be a problem, relying on what went on prior to your involvement. It is advisable to talk to a number of the workers and make positive there isn’t any worker revolt simmering beneath the surface just waiting to erupt.

4.) Customers. It is best to interview a number of key prospects to make certain there are no buyer relations issues waiting for you if you take over. A problem in this space can signal major internal problems with the business, so do not bypass this step.

5.) Vendors. The same is true of vendors to the business. You need to contact a few of the foremost vendors to make positive there are no open issues, and that the distributors will be completely satisfied to proceed doing business with you.

6.) Government. It’s worthwhile to make positive that the enterprise has all the required licenses and permits to operate. It’s worthwhile to be aware of any “grandfathering” conditions that will change when a new owner takes over. In drastic situations, you won’t even be able to operate the business the place it is now positioned, because of a change of codes or different government action that required the business to be grandfathered in. A new owner normally breaks the grandfathering consideration.

The whole point of due diligence is to discover if there is anything within the operation of the enterprise that would cause you to not undergo with the purchase…as well as to highlight areas you will likely need to address shortly after taking over.

Do not skip, or slide over, the due diligence process…it may come back to haunt you.

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