Due diligence and the smart buyer’s checklist
Congratulations, you found a business to buy. As you know there are differences between buying the company itself and buying only the assets of the company.
What you need to know when buying a business
Whether you are buying an entire company or just its assets, there a number of documents and data you must obtain and review. Depending on the type of business you are considering, you may want to start by asking the seller for the following:
- Financial information, including at least three years of financial statements, tax returns (including sales tax returns) and a schedule of accounts receivables and accounts payables;
- Documents relating to the seller’s corporate organization and good standing;
- Litigation including pending and threatened;
- Real estate including any leases and financing contracts;
- Customer information;
- Employee information, including any employee benefit plans, employment contracts in effect, non-competition and non-disclosure agreements and employee manuals;
- Licenses and permits and evidence of legal compliance, including notices of violations, citations, fines, penalties, and assessments from governmental agencies;
- A list of hard assets including furniture, fixtures, equipment and inventory and any related leases;
- A schedule of the company’s intellectual property including domain names, websites, patents, trademarks, and copyrights. This should also include a list and summary of any claims or threatened claims by or against the Company regarding intellectual property;
- Material contracts including any distribution agreements, vendor contracts, purchase and requirement contracts, and marketing agreements; and
- Financing, including credit agreements, loans and guarantees, liens and mortgages and security interests.
Remember: These 11 items are only a beginning. Each type of transaction requires its own kind of investigation and due diligence. Additional information will likely be required. So, ask questions. And regardless of whether you are buying the company itself or just its assets, talk to knowledgeable business counsel.