What is Due Diligence?
Once you have found a business that you’d like to purchase, you need to enter the transaction fully informed. You should confirm the estimated value of the enterprise, educate yourself on its financial and legal liabilities, weigh the pros and cons of the efficiency of its business plan, and get relevant information on and/or from its employees—among many other things. There are several ways to research the ins and outs of your potential new acquisition. Aside from your preliminary independent fact finding, the most important step in this process is the legal due diligence process.
The purpose of due diligence is to gather as much information on your target acquisition as possible before formally commencing the transaction. It is essential to enlist the services of an experienced attorney during this stage of your deal, since it involves analyzing the transaction from a legal point of view. There are several documents and legal considerations that should be taken into account when buying a business, including (but not limited to):
- The Company’s organizational structure;
- Required business licenses and permits;
- Applicable environmental regulations;
- Relevant zoning regulations and laws;
- Existing or pending contracts involving the Company;
- The Company’s financial statements;
- The status of inventory, equipment, and other logistics;
- Tax issues, including clearance letters; and
- Partner and employee information.
After you have completed the due diligence process, in most cases, you will have the information necessary to decide whether you want to purchase the business or continue looking for alternative opportunities. If you decide to move forward, the parties will proceed with the negotiation and sales agreement drafting processes.
Contact The Castle Law Firm
Purchasing a business can be complicated. The Castle Law Firm is highly skilled at helping its clients find, analyze, and secure business opportunities. Founding partner Rob Castle can guide you through every step of the process, including due diligence analysis of a prospective commercial purchase. Contact the firm online or call 312-598-3971 to schedule a free consultation today.