Even the most attractive business entities will have some issues to address sooner or later. Getting to know those issues before they become a disruptive surprise two or three years down the road may save you and other owners from losing time and money. What’s more, the valuation of your prospective business may need some adjusting after you have performed your due diligence.
Consider the following before you put pen to paper and invest in a business:
- Financial history and projections: Where have they been going and where are they headed? Are their current projections realistic given the market of their industry? Review also the business’s expenses, auditor letters, even their credit report.
- Tax information: Take a look at the last three years of the business’s tax returns. Are there audit or revenue reports to review? Don’t forget about the foreign income tax.
- Current contracts: What business-to-business relationships are they currently bound to? How might these contracts affect their bottom line or future operations?
- Technology: Do not overlook the hardware and software used by the business. How old is their equipment? Will you have to replace the computers and systems in the next few years? How much might that cost?
- Company culture and leadership: How does the company manage their employees? What benefits are available to them? Consider getting to know the business’s current employee handbook as well as their onboarding system and morale upkeep practices.
- The customers: How is their relationship with their current customers? Look into their major customer losses and gains as well as documentation of the largest customers and any discrepancies they may have had.
Finally, due diligence is important. But, in addition to reviewing the company’s inner-workings and performance, be sure to take full advantage of your role as a purchaser and potential owner. Keep tabs on economic trends. Check in on various company processes to ensure optimum performance. Perhaps this sounds cliché, but the more you put into your business acquisition, the more you may get out of it.
