The 5-Step Financial Due Diligence Process Before Buying A Business

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The 5-Step Financial Due Diligence Process Before Buying A Business

As an entrepreneur you might come across an opportunity to buy an existing business or shares in that business. Obviously before putting your investment at risk, you need to perform a due diligence exercise to confirm it is worthy.

Here are 5 key points to consider when you are doing a due diligence exercise:

1. Don’t initiate the process until you are 90% sure you want, and you can afford buying this business. Due diligence exercise is costly and lengthy! You don’t want to spend money, time and effort if you are not sure this is the business is for you.

2. Due diligence needs clear objectives- You need to know what you are trying to check and focus your investigation on this area. Are you looking to confirm the business will get you a million dollar in a year? Or you are buying this business just because of its products portfolio?…You need to know what are you exactly after.

3. Use the due diligence process to educate yourself on this business- Understand the processes, know the people, talk to suppliers, customers and staff- they will help you understand what’s working, what’s not and what you need to do to improve. You need to know it in and out because you probably need to run it!

4. Don’t be afraid to ask for commercially sensitive information like clients lists, spends by suppliers, projects or orders in the pipeline. If the seller is genuinely serious about selling, they should be comfortable sharing these details after you sign a non-disclosure agreement.

5. Control your emotions – Many entrepreneurs take the decision to buy a business just because they like it or enjoy it. It is very important that you love the business you’re buying, but if it doesn’t look good during due diligence, it’s probably not!

I hope I added value to your feeds today! Alternatively, you can approach trusted business consultants in Sydney to get all the vital cues.

Do you agree to these 5 points? Let me know your thoughts….