If you are thinking about buying a business, you need to know what you are buying. This means knowing what the assets of the business are, what it’s liabilities are (most of which you don’t want to purchase), what the business is all about (revenues, customers, finances). In short, you don’t want to buy into the unknown, unless you don’t care about protecting your investment.
The way to find out about a business for sale is to conduct “due diligence” on that business. The easiest way to conduct due diligence is by using a checklist. You give the checklist to the seller and ask the seller to provide documents, information and responses to the items in the checklist. Or you go over the checklist with the seller. Better yet, the seller and the seller’s attorney go through your due diligence checklist together.
There are many different forms of due diligence checklists, but they all focus on obtaining generally the same kinds of information. Each type of business has different issues, so there is no one-size-fits-all checklist, other than a checklist that covers every issue under the sun, and as a result is so long as to be next to useless.
I’ve used many different due diligence checklists over the years. I’ve tried to create a “simple” master due diligence checklist, but as noted above, even that checklist includes areas of inquiry that do not apply to every business, making it more difficult to use than it should be. So i’m going to try to create more customized checklists that are geared towards specific types of business:
Here’s the first one, for a local retail business. Try it out and let me know what you think.
Look out for more checklists added to this post in the future.
And don’t forget to just search for “due diligence checklists” on the internet.