Saturday, March 1, 2008

Buying or Selling a Business

For the purchase of a business to be successful, there can be no room for surprises. A review of the business being acquired needs to be done to determine if there is anything that should be known before the deal takes place.

This checklist provides an outline of the types of documentation and infromation that should be reviewed. Of course each business is different so every industry will have its own peculiarities.

Sample Due Diligence Checklist

1. Corporate Documents

2. Contracts and agreements

  • Recent copies of all employment , consulting, and compensation contracts, agreements, plans, and programs.

  • Recent copies of all retirement plan documents

  • Copies of all noncompete agreements

  • Details on all related-party receivables or payables

  • Details on any (prior) owners who have left company within last five years

3. Customer matters

  • List of customers lost in the last three years, customer billing and reason for loss

  • For the last three years, a list of the top ten current customers in revenues, percent of standard, nature of services, and how long with company

  • List of top ten new customers and their current status with company in terms of billing, receivables, and satisfaction

  • List of major proposals that are outstanding, including budgeted standard and fee quoted.

  • List of aged accounts receivable.

4. Reputation and litigation

  • Files on any known or anticipated litigation

  • Copies of all correspondence pertaining to litigation matters.

  • Inquiries of local sources on company reputation.

5. Company Stability

  • Owners - List of all owners who left in the last five years and the circumstances behind the departure

  • Staff - List of managers and other key employees who have left in last three years and any loss in company revenue due to loss

6. Insurance coverage

  • Copies of all current insurance polices

  • Copies of all recent correspondence from insurance companies

7. Credit and related documents

  • Copies of all agreements, bank lines of credit, and other debt obligations

  • Copies of all material financing documents, such as capitalized leases and installment transactions

  • Copies of all material guarantees, indemnification or loans

  • Credit and reference checks on all owners

8. Real estate

  • Copies of all deeds, mortgages, title policies on property owned

  • Copies of all leases

  • Copies of all insurance polices related to property owned

Buying and selling a business should always be reviewed with us before committing to a deal as there are always tax consequences to be considered. We have extensive experience in helping clients with the due diligence on both the buy and sell side of the transaction.