Buying a business is a big complex transaction. The larger and more expensive the business being purchased is the more complex the transaction. As the buyer you have to rely on the information the seller provides you, so you are at a big disadvantage. Not every business is well run. Not every business owner is scrupulous. You don’t want to be sold a bad bill of goods.
On the surface some businesses seem profitable and look to have a bright financial future. But, dig a bit deeper and the outlook isn’t so rosy. There are a lot of red flag high risk issues that the seller of a business may not tell you about. For that matter, they, themselves, may not even know about the issues. You need to do due diligence on the business you are considering buying to verify the information the seller has provided. You need a team of experts to help you evaluate the deal.
At a minimum the core of your acquisition team should be comprised of two key players; a business lawyer and an accountant. These core players will be able to do proper due diligence by evaluating and investigating the documentation and information the seller has provided about the operations of the business. Depending on the size and scope of the business you are buying there are several other experts you should consider including on your team.
You may want to consider adding a business analyst who can help you determine if the business is worth the price. You’ll also want to include a real estate adviser to evaluate the value of any leases or property owned by the business. And, last, have your insurance agent evaluate the type and extent of insurance coverage the business will need.
Ultimately, you will depend on your advisers to help you make a final decision about the acquisition, determine the structure of the deal, and any warranties that may be required of the seller. The bottom line here is, your are trying to accomplish a specific business objective by purchasing the company and your advisers are there to help you determine if the business being evaluated will help or hinder you in attaining that objective.