Congratulations! You are now on your way to acquiring new business. It is as exciting as it is risky. But before you finally take the plunge, you must make sure you do the most critical part of an acquisition which is due diligence.Due diligence is an evaluation of all the aspects of the business that is to be acquired. It is a step-by-step process that involves an investigation of specific elements of the seller. It protects and benefits both the buyer and the seller.
Due diligence may uncover potential problems, or it may provide insights for future opportunities. Since time is of the essence in acquisition deals, the flow of information on both parties is now done virtually. Gone are the days of constant meetings, long paper trails, and unorganized information. It is due to the advent of Virtual Data Rooms.
Virtual Data Rooms or VDR are online databases where companies can use to store and share essential and confidential information. You may liken it to a bank that contains vital data instead of money. Both the business buyer and the seller can access the data on the VDR during the due diligence stage.
Now that you are about to start your due diligence make sure that you include the following information in the process.
Company Structure
It is essential to know the structure of the business that you will acquire. You must check if it is consistent with their business registration. Make sure that you have reviewed all pertinent documents such as articles of incorporation, bylaws, minutes of meetings, and organization charts.Finances
Do not rely solely on outer manifestations of income. A thorough review of all records will reveal a lot about the financial health of the business. Include all audited financial statements, credit reports, and company budget. Review also the schedule of debts, liabilities, accounts receivable, and current inventory record.Assets
A company's assets reveal its financial health. These include inventory, land, equipment, and bank accounts. There should be a detailed description of all assets. There should also be corresponding permits and tax information.Intellectual Property
As a prospective buyer, you should know all the areas where you may need to protect the company's rights in the future. Include a review of schedules of copyrights, trademarks, existing, and pending patents.Employees
Ask for a list of all employees. The list must include their positions, job descriptions, salary, and tenure. Review company policies on hiring, compensations, promotions, and benefits. You should also check on potential legal issues that you may have to face as the new business owner.Tax Records
Make sure that there are no past and current tax issues and liabilities. To be safe, you must pore through all tax returns that go back several years. Check if there were tax audits and investigations.Contracts
The business has contracts with banks, distributors, employees, suppliers, and shareholders. Include bank agreements, loans, warranties, installment plans, distribution contracts, and stock purchases in your due diligence.The information mentioned is crucial in making one of the most important decisions that you will have to do as a business owner. You may adjust or tweak them according to the size of the business that you will acquire. A virtual data room is an indispensable digital tool that will make due diligence data sharing swift, organized, and confidential.
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