Business Due Diligence
Great! You have decided to purchase a business, but what’s next?

Buying a business is always a very exciting period in your life. However, before
you contractually commit to the purchase you need to engage in a process
called due diligence on the proposed business you are buying.
Once you decide to buy a business you need to obtain as much information
about the business and purchase as you can. As a buyer you will want some
form of certainty that the business you are buying is in the condition it has been
represented to by the seller. This process is called due diligence. Due diligence
includes considering both financial and non-financial elements of the business.
Due diligence can be performed prior to signing a contract but in that case you
can lose out to another buyer who signs before you do or performed once you
have signed a binding contract to acquire the business. A time limit is imposed
for this to be done. As a minimum, it is recommended you allow 15 business
days to conduct your due diligence. This period obviously changes depending
on the size and complexity of the transaction.
At the conclusion of your due diligence you should be in a position to
understand the financial health, risks and the competitive arena in which the
business you are acquiring operates.
Broadly speaking, due diligence can be broken up into eight key areas:
1. Financial performance; 2. Financial position; 3. Tax; 4. Customers; 5. Suppliers; 6. Employees; 7. Legals; and 8. Competitive landscape. A good due diligence checklist can provide some assurance for you on those eight key areas when buying the business. Warranties as to the accuracy of the information can be included in the Contract to protect you. A typical checklist might include: • Copies of the last three years of financial statements including profit and • Up to date management accounts for the year to date; • Copies of tax returns for the last three years including all schedules; • List of plant and equipment, fixtures and fittings including depreciation • List of any stock expected to be sold with the business including any • Copies of any lease/hire purchase documentation for any assets under • Copy of aged debtors ledger; • Copy of aged creditors ledger; • Schedule of sales by customer for year to date; • Copy of lease agreement if premises are leased; • If a franchise, ask the vendor for a copy of the franchise agreement and • Copies of any agreements – suppliers, contractors, agency, distribution, • Copies of permits, certificates of registration etc with government authorities, appropriate to the nature of the business; • Copies of any employee records including leave entitlements; • Details of insurance policies (Eg WorkCover) and dates of cover; and • Any industrial awards or enterprise bargaining agreements in place
Remember this list is by no means exhaustive and buyers should always obtain
independent professional advice when considering your due diligence.
If you are thinking of selling is also vitally important to do Due Diligence on your
own business before listing for sale, if you want the buyer to see your business
in the best light. Get all your records, legal, financial and otherwise checked and
in order so the buyer can’t find a reason to knock your asking price down.
Scott Devereux is the Director of One Business Brokers Pty Ltd – a specialist
SME business broking firm. He is a Chartered Accountant and licensed
Business Broker in Queensland and is an expert in business sale transactions

Please also call us on 3849 6263 or emailif
we can assist you with any of these issues.


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