Due Diligence AKA The Investigation

By ERIKA BAEZ-GRIMES Business Broker | Certified M&A Advisor | Commercial Real-Estate
When making a significant acquisition—whether acquiring
a business, purchasing real estate, or engaging in a
partnership—conducting due diligence is crucial. Due
diligence ensures that you understand the financial,
operational, and legal aspects of the asset or entity in
question. Here are a key items buyers and acquirers review
with their deal teams to make informed decisions.

1. During Financial Due Diligence items to review with your
advisory team can include:
- Financial Statements: Review profit and loss statements,
balance sheets, and cash flow statements for at least the past
three years. - Tax Returns: Analyze federal and state tax filings to confirm
compliance and assess liabilities. - Revenue and Expenses: Verify sources of revenue, customer
contracts, and major expenses. - Accounts Receivable and Payable: Ensure outstanding
debts are collectible and liabilities are manageable. - Debt and Liabilities: Review loans, credit lines, and
contingent liabilities. - Profit Margins: Assess profitability trends and sustainability.
- Financial Projections: Evaluate future revenue forecasts and
underlying assumptions.
2. During Legal Due Diligence, items to review with your
legal team include but are not limited to:
- Corporate Documents: Verify business registration,
operating agreements, and articles of incorporation. - Contracts and Agreements: Examine customer agreements,
supplier contracts, and partnership agreements. - Litigation History: Check for pending or past legal disputes
and regulatory violations. - Compliance and Permits: Ensure compliance with industry
regulations, zoning laws, and necessary permits. - Intellectual Property (IP): Verify trademarks, patents,
copyrights, and proprietary technologies.
3. During Operational Due Diligence, items to consider:
- The Business Model: Analyze revenue streams, value
proposition, and competitive advantages. - Employees and HR Policies: Review employee contracts,
benefits, and key personnel dependencies. - Supplier and Vendor Relationships: Assess terms and risks
associated with suppliers and partners. - Customer Base and Retention: Evaluate customer
acquisition strategies and retention rates. - Technology and IT Infrastructure: Ensure software,
cybersecurity, and data storage practices are up-to-date. - Industry Trends: Research market growth potential and
regulatory changes. - Competitive Analysis: Identify major competitors and analyze
market positioning. - Customer Demand: Assess customer needs and potential
demand shifts. - Economic Factors: Consider macroeconomic conditions that
could impact profitability.
4. During Real Estate Due Diligence (If Applicable) items to
review may include:
- Property Valuation: Compare property value with market rates.
- Title and Ownership: Verify ownership records and title status.
- Zoning and Land Use: Ensure property compliance with
zoning regulations. - Inspection Reports: Conduct environmental and
structural inspections. - Lease Agreements: If applicable, review lease agreements
for tenants.
5. During Risk Assessment and Contingency Planning review
items such as:
- The SWOT Analysis: Identify strengths, weaknesses,
opportunities, and threats. - Exit Strategy: Have a clear plan in case the investment does
not meet expectations. - Insurance Coverage: Ensure suicient insurance for business
or property risks. - Crisis Management Plans: Prepare for potential operational
disruptions or economic downturns.
Conducting thorough due diligence is essential for mitigating
risks and making sound buying decisions. A well-structured due
diligence process can ensure transparency and reduce a level of
uncertainty. If you’d like more information about Due Diligence,
Buying or Selling a business please visit:
www.NovaBusinessInquiry.com