One way to grow your business is through acquiring another business. It can quickly increase your customer base, extend your geographic reach, and/or expand your products/services. Although a business acquisition can have tremendous upside for your business and its profitability, you want to ensure you are buying the business and not the problems. As such, due diligence is a critical component of any business acquisition, giving you the opportunity to look under the hood of the business being acquired. Below are three critical areas that should be reviewed in any due diligence process.
Corporate Matters
When buying a business, you need to make sure the business has the authority to sell. You need to review the governing documents, such as the articles of incorporation, bylaws, and shareholder agreements for a corporation or articles of organization and operating agreement for a limited liability company. These documents will let you know who has to approve the sale and the process for obtaining such approval. This review will allow you to independently verify the business has obtained the proper approvals for you to buy.
Financial Matters
You of course will want to understand the financial performance/heath of the business being acquired. To do this, you should review financial statements, tax returns, and any future projections prepared by the business. You will also want to review the business’s outstanding debts, assets, and liens. Additionally, there are many other documents that can affect a business’s financial stability, such as insurance policies, leases, financial provisions in contracts, and the current payroll burden.
Intellectual Property
Every business has intellectual property, whether it’s obvious intellectual property such as a federally registered trademark or a patent, or the not so obvious, such as processes, customer lists, or pricing models. When buying a business, you want to ensure you have a full understanding of the business’s intellectual property portfolio, and what safeguards the business has put in place to protect it. For example, you will want to know if the trademarks have been registered with the United States Patent and Trademark Office, if employees have signed non-disclosure agreements, and if the contractors that created any of the intellectual property have executed Work for Hire or assignment agreements.
At Ser & Associates, we understand the challenges buyers (and sellers) endure when negotiating a potential acquisition. If we can help you with any prospective business acquisition, please contact Ser & Associates at 305.222.7282 or Info@Ser-Associates.com.
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