The Groundwork for Business Success: Critical Steps in Due Diligence
It is important to practice due diligence if you are planning to buy a business. Due diligence is a legal concept that refers to the reasonable steps taken before entering a business agreement. This entails looking at important financial records and other documents relevant to the transaction.
Business law firms like Creagh Weightman Lawyers agree that due diligence is the best way to examine the value of a business and protect yourself from the risks associated with acquisition. Follow these steps in due diligence with the help of a business lawyer:
Check the Business’ Financial Status
It is important to have a clear understanding of the business’ financial status. Review records like balance sheets, profit and loss statements, tax returns, accounts payable and receivable, and all other relevant material. It is also necessary to draft a list of debts and to check if the creditors have a security interest on the assets. Your business lawyer can help you verify liens.
Examine the Lease
Secure a copy of the lease if you are looking to acquire a business that operates on leased space. Study it with your lawyer. You need to know how long the lease will last or if there is an option to renew. You may need to consult the property owner for this.
Confirm the Business’ Legal Status
There are two distinct cases for businesses owned by corporations or an LLC. The first one involves purchasing all assets of the business, while the other entails purchasing the business entity itself. Most investors find buying the former a better choice.
Proceeding with the purchase of a business entity, however, may involve stocks and membership interests. Your lawyer can help review records on how the entity was created by looking into bylaws and resolutions.
Check the Physical Assets
Some business purchases involve assets such as equipment and inventory. Be sure that these are in proper working order. For rental equipment, make sure to review the conditions of the lease agreement.
Conduct due diligence with your business lawyer. These professionals will be able to give you valuable insights regarding business acquisition and getting restarted.