DUE DILIGENCE IN THE PURCHASE OF A BUSINESS: A Check List
WHAT DUE DILIGENCE IS DUE WHEN YOU ARE BUYING A BUSINESS
"Due Diligence" is where you find the facts about a business. Financial and legal services are needed to complete a careful analysis of a business. The goal? To make a fully informed decision.
Due Diligence: Purchasing a Business Action Checklist
The purpose of this checklist is to highlight some common areas for a business buyer to consider when buying a business.
Have you obtained the last four years’ financial statements of the business?
Have you obtained information on the business’ capital structure, debt, and related party interests?
Have you undertaken any industry benchmark analysis?
Have you considered the financial projections and major growth drivers of the business in the next four years?
Have you obtained the last four years’ tax returns, including supporting schedules and workpapers of the business, such as Capital Allowance schedules, Business Activity Statements, Fringe Benefits Tax returns, etc?
Have you obtained confirmation that all tax obligations are up-to-date and paid?
Have you familiarised yourself with the tax obligations of the entity to be purchased?
If you are buying a business through an asset sale:
~Has a fixed asset register been obtained detailing all the assets being sold?
~Has the purchase price been apportioned across the assets being purchased?
Have you obtained a list of the employees, including their salaries and other entitlements? Are there any key staff who would be imperative to the smooth, continued running of the business?
Are you aware of all employment conditions, including key workplace agreements, any incentive bonus plans, staff rotation policies, disciplinary procedures, standards of conduct, etc?
Have all outstanding employee entitlements, such as guarantee and annual leave, been accounted for?
Are the Worker Compensation premiums up-to-date?
Are you comfortable with the current business culture, the level of staff relations and turnover over the last four years?
Have you seen copies of all real estate lease agreements, deeds, mortgages and any relevant documents relating to the premises?
If the same business premises are to continue, has the vendor facilitated a lease assignment and all documents signed by you?
If there are improvements to the business premises, has a register been obtained detailing the improvements?
Do you know why the vendor is selling?
If you are acquiring the business with other people, do you have the necessary agreements in place?
Are the business operations subject to any government regulations? If so, are all relevant government licences, permits or consents up-to-date?
Have you given thought to whether the structure (company, partnership or trust) that the business operates through is suitable for your needs?
Have you identified the key customer and supplier contracts and the likely impact a change of ownership might have on these agreements?
Have you examined current production, distribution, sales and marketing strategies (including websites) of the business and the likely impact of a change of ownership?
Matt Kinley is the founder of Kinley Law Practice.