Due Diligence

Following are the items that the Buyer should review during the Due Diligence period:

  • Detailed information on the Seller’s products and services, how they market them and to whom.
  • Information on Seller’s industry, the company history, competitors, growth opportunities, etc.
  • 3 most recent years of complete financial statements. If the business is being purchased as an Asset Purchase, only Profit and Loss Statements will need to be reviewed. If being purchased as a Shares Purchase, Balance Sheets will also be reviewed.
  • Current Interim Financials.
  • 3 most recent years of complete tax returns.
  • Current Inventory value at landed cost, along with a review of average Inventory levels throughout a typical year. (This would be a good time to reconfirm the amount of Inventory that will be included in the Purchase Price and how the “Inventory Count” will be handled).
  • Current value of real property, if included in the Purchase Price. A current appraisal would be ideal.
  • If the business premises are leased, a review of the full copy of the Premises Lease, paying particular attention to provisions relating to rent increases and lease assignment requirements of both the Buyer and the Seller.
  • A list of all Assets. The Furniture, Fixtures, Equipment and vehicles that are included in the Purchase Price, along with an estimate of the “used replacement value” of the FF&E. This will become Schedule A.
  • Any Asset Purchase Agreements and any Equipment Leases to determine that they are current and transferrable to a qualified Buyer.
  • A list of all items within the business premises that are NOT included in the Purchase Price. This will become Schedule B.
  • Copies of any trademarks, patents, licenses and/or intellectual property that is included in the Purchase Price.
  • A review of the software necessary to operate the business, along with its current value and the cost, if any, to upgrade it to the most current version.
  • A review of the business Web Site, along with hosting and maintenance agreements.
  • Current Accounts Receivable Report, including aging.
  • Current Accounts Payable Report, including aging.
  • Checkbook Register(s) and bank statements for the last 3 years.
  • Current Client List. Buyer should be looking for client longevity, client growth, client diversity and sales concentrations.
  • List of current suppliers. Buyer should review agreements and relationships.
  • List of Employees. Buyer should review the terms of their employment, their position, length of employment, any Employment Agreements, and current compensation packages, including benefits.
  • Employee Interviews. These interviews will be conducted in such a manner that will not cause unnecessary concern by staff members.
  • Copies of all contracts relating to advertising, including phone directory advertising.
  • Copies of all licenses necessary for the operation of the business.
  • Copies of any Franchise Agreements, License Agreements, Dealership Agreements and/or Distributorship Agreements (as applicable).
  • Copies of all insurance policies for review and determination of transferability.
  • A copy of the Policies and Procedures Manual(s), if they exist.
  • Copies of current promotional materials.
The above is not meant to be an exhaustive list of Due Diligence items to review. The Buyer’s advisors may have additional items that they wish to review.