This article are provided for information purposes only, and are not intended as legal advice.


Partial due diligence check list

March 25th, 2010

You would like to buy a business and need to conduct your due diligence – what do you need to look for?  Everyone looks at different items but here is a partial list of some of the many things that you should look at:

 

  •  existing lease agreement
  • any lease obligation including any vehicles used by the owner of the existing business
  • payroll records
  • determine length of time that staff have been on the payroll – you may have a large potential severance cost if you terminate a long time employee
  • determine if there are any family members on the payroll, who work or even those who are paid by not active in the business
  • income tax returns – is the business up to date in filing tax returns
  • is the business up to date in filing sales tax returns (PST and GST/HST in Canada)
  • when was the last time that the business was audited, do you have a copy of the notice of reassessments?
  • has the business had a health inspection lately, if this is applicable review the inspection report
  • if the business is required to have annual inspections from the health department, were there any deficiencies that needed to be fixed?
  • has the business been inspected by the fire department?  any deficiencies which need to be addressed and fixed?
  • accounting records, are they computerized or manual?
  • review the bank statements and cancelled cheques
  • review any purchase commitments
  • review all legal documentation
  • review all correspondence with accountant/bookkeeper
  • review unpaid invoices
  • see if the business has any supplier statements which states the balance outstanding and see if this agrees to the accounting records
  • have your lawyer determine if there are any liens on the business
  • review their existing banking covenant, see if they are in breach, will you be able to use the same banker to provide working capital loan in the future?
  • determine if the sellers costing is done properly.  The old owner may not provide this information to you in due diligence to the sensitivity of the information because if you do not close the purchase of their business, you can use this information against the owner to compete
  • gross margin analysis by product and customer.  Again, this may not be available to you in due diligence due to the sensitive nature of the information as noted above

 

This is a partial list that may be useful to you when you buy a business.  There are many more items which should be looked at.  Please contact your professional advisors and/or your accountant to go over your particular needs and he/she can review the business which you are looking to buy and they will make additional recommendations of what to look at in due diligence of the business which you are trying to buy.


Filed under: Due diligence — Gary Landa @ 10:38 am


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