Buying a Business and Conducting Due Diligence
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Written on 15 February 2014
Buying a pre-business can be advantageous but requires careful
consideration and research. Prospective buyers should be sure that the
business is worth the amount being sold for. Conducting due diligence
is a period of time when perspective buyers can investigate and
evaluate the depths of a business. As the prospective buyer it is
necessary to carry out investigations to ascertain the value of the
business, its assets and any obligations to existing staff prior to
entering a formal agreement. This period usually begins once the seller
and buyer have agreed to deal in principle. Due diligence can
divided into three categories: legal; financial; and commercial.
Legal due diligence concerns sales and purchase contracts. It is
necessary to check that there is no outstanding litigation that the
business has the legal title to sell goods and that it owns its assets.
Assets include, property therefore subsequent research must be
undertaken concerning location, deeds and leases etc, equipment,
technology and intellectual property such as trade marks, registered
designs and patents. This will assist you in valuing the company.
Financial due diligence pertains to check accounts highlighting
inconsistencies or potential existing financial issues. Finances are
essential in your research. It is therefore necessary to scrutinize the
businessís books and financial records with particular regard to past
and projected cash flow, noting particularly relationships with
creditors, debtors, suppliers and management.
Finally commercial due diligence concerns the identification
customer relations , goodwill the business might have attained the
relevant marketplace and the regulatory environment. It is important to
understand the business in terms of its industry and competitors.
It is advisable to enlist the professional help of an account and
solicitor when starting the process of due diligence. Research is
fundamental and it is important to uncover as much information as
possible, thus it is advised to begin by researching the business on
Companies House. Here the buyer can assess information regarding the
business such as its latest accounts, returns and company reports.
Inevitably it is impossible to learn everything about a company but it
is important to learn a sufficient amount to make a clear and informed
At Lawdit we have carried out dozens of due diligence exercises; its a
must and you must use someone you are comfortable with and trust
Written by Michael Coyle
About the Author
Solicitors offer services and advice for litigation,
commercial contracts, Intellectual Property and IT legal agreements. We
are experts in commercial law with a heavy emphasis on Intellectual
Property, Internet and e-commerce law. Lawdit is a member of the
International Trademark Association, the Solicitors' Association of
Higher Court Advocates and we are the appointed Solicitors to the
largest webdesign association in the world, the United Kingdom Website
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Article Published/Sorted/Amended on Scopulus 2014-03-13 10:10:09 in Legal Articles
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