Due Diligence Checklist Tip for Buying an Established Business

Buying an Established Business - How can you trust if a seller’s financial claims are genuine?

When you are looking at buying an established business, the seller may provide their earnings in one form or another.  To verify the sellers’ financial claims, the first test is to ask for substantiation.  If the seller cannot or will not back up the information – walk away – do not waste your time. You must be able to thoroughly research and investigate all the information.

Remember, there are many variables to calculate when buying an established business, so it is wise to ensure a close ‘working’ relationship is built so that everything is out in the open and you have peace of mind about all areas of the business.

On some occasions, the seller has a different figure to what is actually in the records. There may be a good reason for this – perhaps there is a percentage of cash which is not always recorded and not relied upon. It is up to you to look into this to ensure you understand why, what amount and when is it taken in.

Do not take anything at face value. The saying “you get what you inspect not what you expect” applies here.

When you do find a business that passes the 1st and 2nd stages of your inspection, you then do a comprehensive due diligence checklist, ready for the remainder of your inspection.

Most sellers are good honest people some however are extremely tricky.

A vital part of buying an established business is conducting the inspection using a comprehensive due diligence checklist. The financials of the business are most important and should be done carefully and at your own pace. Here are a couple of starting points before you go any further in the business buying process:

1/ Request to see previous years tax returns and general accounts documentation

2/ Ask for evidence of all discussions with the vendor eg. Purchases made, staff, suppliers, leasing agreement to name a few

All the information for every facet of the businesses must be carefully investigated before negotiating begins.

When Buying an Established Business - Take your time and don’t be persuaded to rush through your due-diligence checklist. This is a big decision and your future financial situation is at stake. If you’ve covered everything necessary, there will be far less room for error or even regrets.

Start off with all the information by using the Bizbuy Kit.  You can simply step through the process with peace of mind and have the actual business valuation to measure the value of each business you are interested.