The Business Due Diligence Checklist.
Technical terms often leave us baffled; business due diligence is one of these. In case you are purchasing a new business or investing capital in a start-up, many experts suggest you conduct a due diligence investigation as a precautionary measure. To put it in simple terms, due diligence simply means investigating the background or status of a business or operation. It includes a range of legal obligations, assignments, investigations and reports.
Like you would investigate the personal history of an individual, it’s necessary to probe into the history of a business. This category involve asking questions about the date of establishment, the change in the owners, reasons for changes in ownership if it’s been frequent, the trading history when it comes to cash flow and sales along with the upswings and downswings witnessed by means of a business.
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Employee information is usually requested as part of the business due diligence practice during an acquisition or merger. Employee information it is possible to ask to be furnished includes the list of employees, their credentials, their job roles, pay, benefits, incentives and bonuses. It also includes agreements and contracts signed between authorities and employees. The employee benefits handbook provides information about sick time, vacation and overtime policy. You need to also request the authorities to brief you on the organization’s retirement policy. A private investigator conducting the due diligence process on your own behalf determines the trustworthiness of employees based on their personal history and character.
You’ll find certain legal concerns you ought to be informed about too. Legal issues are inclusive of civil and criminal cases in the personal and company level. In the company level it involves asking questions such as the company’s involvement in legal proceedings in the past, pending legal issues, the company’s stand (convict or victim) and causes and outcome of the legal issue. Also included in this section are listings of employee disputes. In the personal level, it involves investigating accusations against owners or authorities in cases like drunken driving, use of banned substances or soliciting a prostitute.
Ask the company to provide a list of its own current assets. Real estate is the most common asset. Other assets are vehicles, equipment, bonds, shares and foreign currency investments. Assets serve as an indication of wise spending and over spending.
As an investor or prospective buyer of a business, it’s your right to demand financial details of the operation. You should request the company to provide financial statements or credit reports for 3 to 5 years. This includes information on accounting methods, accounts payable, accounts receivable, budgets, analyst reports, liabilities, and inventory and tax documentation. You’ll be able to also request reports from company auditors.