How to do due diligence when buying a business

Business Trade Centre

Buying a business can be a great way to profit without having to go through the early struggle of getting the company off the ground. However, to get the best out of your purchase, you’ll need to do a lot of due diligence to avoid getting a raw deal.

Here is a list of some of the major areas you’ll need to look at, and the key questions you should ask:

Get a real feel for the business

You want to try and understand the company as much as you can, as well as the market, assuming it’s not a market you’re already experienced in.

It’s important not to rush this: you want to get as much information as possible on everything to do with the business. What are the company’s main competitors? Who is actually responsible for supplying the products or services, and what are the business’ current relationships like with them?

Investigate the company’s financial situation

How does the business make its profits, and what are they? What are the monthly expenses? Is the business currently successful? Have profits been going up or down recently? Is the seller’s valuation of the company accurate? Are there any hidden liabilities you’ll need to account for? How reliable are their future financial projections?

What is the state of the market?

It’s important to ensure you consult other people in the industry to get a more impartial view on the company’s potential. What is the current market demand like? Is it growing or in decline as a whole? How has the market changed in the last year or two, if at all? Is there a market reason why the current owners have chosen to sell the business ?

People and staff

Employees make a business, so it’s important to try and get a handle on the staffing within the company. What are the current staffing levels, and are they sufficient? Who are the key employees within the company, and will they be staying on after the purchase? How capable are the senior management teams, and how will they feel about the sale?

Get in touch is one of the UK’s business for sale marketplaces, with new companies coming up for sale every day. If you’re interested in looking for a new investment, be sure to check our listings.

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