Buying a Business? Here Are Things to Look For

When you are buying a business, or thinking of merging with a business, you will almost always have a period known as due diligence. This is your time to “check under the hood,” and see whether the purchase is a smart and potentially profitable one.

But despite being given a time period to conduct due diligence, many people actually don’t know what they are supposed to be looking for, in a due diligence period.

Here are some basics that you may want to consider, when you are considering purchasing a business

Revenue, income and sales – Many people look to the past to see what the business has earned previously. That’s important, but other factors need to be considered as well, that could affect revenue in the future. Is there some industry trend that could change business? Are there legal changes that could affect the business? Are there multiple rising competitors in the field that could cut into revenue in the future?

Liability, claims and lawsuits – Lawsuits are easy—you can do a public records search and see what lawsuits are pending. But you also need to know about claims, notices of claims, complaints, and other things that could become liabilities later on, but which have not actually been filed in any court yet. This includes notices from government entities, like EEOC or OSHA complaints, or notices of back owed taxes. These won’t show up in a public records search.

Money Owed (accounts receivable) – This can be seen as a mixed bag. On the one hand a company owed a lot of money may be good—it means there is revenue to be had, still coming in, which you could collect on if you owned the business.

On the other hand, why isn’t this company getting paid timely and why are there accounts receivable? Do its customers not pay, or has the business itself been lax in the past about collecting on amounts that are owed?

Shareholders or Partners – Who are the shareholders, partners, or other managers of the business? Do you get along with them? Or is this a business that has had a lot of infighting amongst owners or managers in the past? And is there money owed to them?

Confidentiality – Are the business’ secrets protected by valid and binding NDA, confidentiality or similar agreements?

You don’t want to buy a business and later find out that 10 employees left the company in the last month, all with your valuable trade secrets or customer lists. Or that you’re inheriting a business with hundreds of employees, all of whom are free to disseminate your trade secrets without penalty if they want to.

And if these contracts do exist, can you enforce them? If you’re not a party to their original NDAs or other contracts, you may not get the benefit of them.

Intellectual Property and Naming– Does the business actually own the jingles, logos, sayings or slogans that they are using? For that matter, do they actually own the social media sites, or URLs that relate to their business? And that means all the URLs—whether they end in .com, .net, or some other domain name.

Buying a business? Make sure you get legal advice. Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 today.

Source:

bizbuysell.com/learning-center/article/due-diligence-checklist-what-to-verify-before-buying-a-business/