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3. Do your Due Diligence Financial Documents. Such as balance sheets, cash flow statements, debt disclosures, tax returns, sales records, accounts payable, and advertising costs. ... Contracts and Agreements. ... Leases. ... Licenses and Permits. ... Letter of Intent (LOI) ... Other Documents.
Your due diligence should include the company's: General ledger. Company credit report. Financial statements from the past 3 years. Summary of all debts and contingent liabilities. Summary of inventory, accounts receivable, and accounts payable. Depreciation, amortization, and accounting methods.
Things to consider may include: sales processes, manufacturing, and distribution. products and services. business partner contracts, suppliers or other third parties and shareholders. culture, and values. product trials, warranties, and complaints. quotes, pricing, invoices, and profit margins.
During the due-diligence period, a purchaser may order inspections, research zoning or permits, review environmental factors, or shop for insurance. A pest inspection is normally ordered as well as a home inspection. At the end of due diligence, the buyer can negotiate any repairs with the seller as well as credits.
Due diligence checklist Look at past annual and quarterly financial information, including: ... Review sales and gross profits by product. Look up the rates of return by product. Look at the accounts receivable. Get a breakdown of the business's inventory. ... Make a breakdown of real estate and equipment.
Due diligence allows the buyer to gain a much more detailed understanding of the business and confirm that the acquisition is a good idea. The vendor provides comprehensive commercial, financial, legal and other information so the buyer can understand how the business works.