Home » Due Diligence

Tagged Due Diligence

Due Diligence Documents

What to consider when you conduct a due diligence

Due Diligence

When looking to acquire a new business or perform a merger with another business, there are a few things that you should ultimately know about that business before purchasing it. While it may seem like everything is there in black and white before your eyes, every business has its secrets. As the business or individual looking to buy this new business, you have the right to perform your due diligence and see those dirty little secrets for yourself before jumping to buy this business. With 2 in every 3 business deals failing and leaving both the buyer and sellers there to pick up the pieces, shouldn’t you be able to take things more carefully.

Due Diligence Documents
Due Diligence Documents

What is Due Diligence?

Due Diligence is the investigation of a business or individual before the signing of a contract or act. This investigation should be done with care to prevent problems for the buyer or seller of a business or the signing of a deal with an individual. While there are examples of due diligence in legal matters, the business world sees it as a process that should be done voluntarily to ensure that the business deal goes smoothly. There are several examples that can be given pertaining to small and medium businesses, such as a merger, privatization, acquisition, and so much more.

Framework of Due Diligence

You can easily break the process of due diligence into 9 different areas to make the business deal go smoother. Each of these audits will provide you with not only peace of mind of the deal as a whole, but let you know what the business may be hiding before you purchase it. There are audits for compatibility, macro-environment, marketing, financial, legal, management, production, information systems, and finally reconciliation. If any of these audits don’t sit well, then the merger may be likely to fail.

Checklist

You can easily acquire a checklist to help you through the process of due diligence by going to http://www.docurex.com/due-diligence// and providing the requested information to receive this checklist. Not only has it been proven to help you avoid the mistakes that other companies have made, but will save you time, money, and a lot of extra work in the long run. Many people have shown their approval of this checklist, and even more have profited and benefited from the structuration and helpfulness of this amazing list during their business deals and ventures.

Why a due diligence is important

Why a due diligence can be so important

Did you know that two out of every three buying deals fail? This is often because of a lack of due diligence by the buyer.

Now, you may be asking yourself, “What is due diligence, exactly?” and hey, that’s a fair question. In its simplest terms, due diligence is the investigation of a business and the people behind that business prior to the acceptance and signing of a contract or buying deal. Due diligence is the process by which someone whom is looking to make an acquisition pours over the assets of a company and makes a thorough evaluation of their affairs.

But how does one complete a thorough act of due diligence? Well, I’m glad you asked! I’m going to walk you through the process of due diligence by providing an in-depth — but by no means fully comprehensive! — look at acquisition analysis.

Consider this a quick primer. If you’re looking for more in-depth thoughts, I encourage you to check out a more detailled due diligence checklist.

A sample due diligence checklist
A sample due diligence checklist

There’s always a distinct reason behind the sale of a business. It may be a nice, simple reason, such as the fact that the individual(s) involved are approaching retirement age. However, there may be more troubling or even nefarious reasons that you will want to ascertain prior to an acquisition. For example, has the company suddenly seen a downturn in profits? Are they working through a lawsuit?

Understanding the “why” before making a business deal is critical. In order to get a more complete picture of the “why,” you’ll want to obtain recent and past business plans from the company, consider structuring and how the company targets different sales regions, and consider any related acquisitions. Other acquisitions in the same industry may give you a clue as to any potential for an industry-wide downturn.

 

Dive into Financial Results

 You may see a few numbers that you like right out of the gate, and there’s nothing wrong with that: It’s nice to get excited about a possible new acquisition! However, again, it’s all about due diligence. Be thorough with examining their financial results. Jump in head first! Examine financial statements, understand cash flow analysis, consider any possible cash restrictions, and pour over public filings and disclosures.

Hone in on Liabilities

A specific off-shoot of the financial considerations that you will truly want to zero-in on are liabilities. What kind of liabilities does the company currently hold? Such liabilities can greatly offset otherwise positive financial performance. Are there overdue payables? Has the company been loaned money by anyone, such as managers and shareholders? What assets are considered collateral by lenders?

There’s a lot of questions to ask yourself when it comes to potential liabilities, but rest assured you’ll be far better off putting that work in!

Educate Yourself on Legal Issues

Ideally, the business you’re looking to acquire won’t be steeped in any legal issues, but you can never be sure. Check into both current and prior company lawsuits. Review all previous legal invoices, and get to know the charter and bylaws of the company by heart. Oh, and dig up old minutes from board and shareholder meetings. You never know what you may find there. Better safe than sorry!