Due diligence tips when buying a business

Discussion in 'Growing Your Startup' started by uksme, Jan 28, 2015.

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When buying a business, the thing I am most concerned about is...

  1. Whether the seller's turnover and profit figures are accurate

    71.4%
  2. Whether there are any surprises in the property lease

    28.6%
  3. Whether I can rely on the reputation of the seller

    28.6%
  4. Whether I will experience cash flow issues in my first year of trading

    57.1%
  5. Whether I can rely on existing staff members

    14.3%
Multiple votes are allowed.
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  1. uksme

    uksme UKBF Contributor Free Member

    72 9
    Many new business buyers will have heard the phrase 'due diligence', but few know how to carry out due diligence in a comprehensive manner.

    We're preparing a checklist of due diligence tasks for anyone looking to buy a new business, and we'd love to know your thoughts.

    Have you bought a business recently? If so, what do you wish you had known (and checked) at the time of purchase?
     
    Posted: Jan 28, 2015 By: uksme Member since: Oct 2, 2009
    #1
  2. ethical PR

    ethical PR UKBF Legend Free Member

    6,904 1,511
    The obvious ones you haven't included are TUPE and liabilities.
     
    Posted: Jan 28, 2015 By: ethical PR Member since: Apr 19, 2009
    #2
  3. deniser

    deniser UKBF Legend Free Member

    8,015 1,684
    It depends on whether you are buying a company or just buying the assets of the business....
     
    Posted: Jan 28, 2015 By: deniser Member since: Jun 3, 2008
    #3
  4. uksme

    uksme UKBF Contributor Free Member

    72 9
    Thanks for your comments - both good points - we'll take this into consideration :)
     
    Posted: Jan 29, 2015 By: uksme Member since: Oct 2, 2009
    #4
  5. sjbeale

    sjbeale UKBF Ace Full Member

    1,214 212
    When taking ons staff beware of TUPE. It is a minefield so you should take legal advice.
     
    Posted: Jan 30, 2015 By: sjbeale Member since: Jul 8, 2005
    #5
  6. Paul_Rosser

    Paul_Rosser UKBF Big Shot Full Member - Verified Business

    4,541 1,107
    You also need to ensure you cover what happens to any potential tax issues in future.

    Had a client recently who purchased a company, all looked good until 6 months later HMRC informed them that due to the previous owners being involved in a tax scheme the company owes them £50k.
     
    Posted: Jan 31, 2015 By: Paul_Rosser Member since: Jul 5, 2012
    #6
  7. Bob

    Bob UKBF Big Shot Free Member

    3,668 929
    The list could be endless. Here are a couple more
    Why are the vendors selling? Will they be competing with you?
     
    Posted: Jan 31, 2015 By: Bob Member since: Jul 24, 2009
    #7
  8. uksme

    uksme UKBF Contributor Free Member

    72 9
    These are all really helpful - thanks!
     
    Posted: Feb 4, 2015 By: uksme Member since: Oct 2, 2009
    #8
  9. Earplugsprotection

    Earplugsprotection UKBF Contributor Free Member

    33 3
    Recently purchased a business and cast my vote ..... P&L
     
    Posted: Mar 1, 2015 By: Earplugsprotection Member since: Mar 1, 2015
    #9
  10. AmarDigital

    AmarDigital UKBF Newcomer Free Member

    24 3
    Interesting poll...

    Due diligence can be conducted in a host of different ways. The level of detail depends on the size of investment and the associated risks. Six key pillars should form part of the process for due diligence of an internet business:

    1. Traffic
    2. Financial
    3. Owner
    4. Operational
    5. Technical
    6. Legal
    I would say the best thing to do is to get a clear audit of what the owner and employees do, how much time they spend on it and what the cost would be to replicate and/or maintain. These are the easiest thing for sellers to misrepresent in a sale.
     
    Posted: Mar 4, 2015 By: AmarDigital Member since: Mar 4, 2015
    #10
  11. uksme

    uksme UKBF Contributor Free Member

    72 9
    Thanks again everyone - this has been really helpful! We're going to incorporate some of your thoughts into our article.
     
    Posted: Mar 25, 2015 By: uksme Member since: Oct 2, 2009
    #11
  12. The Byre

    The Byre UKBF Ace Free Member

    7,955 3,081
    Remember what Warren Buffet said on this subject - "It's better to buy a good company for a fair price, than a fair company for a good price!"

    Nobody, repeat nobody, sells a good company cheaply. You only sell a good company if you see dark clouds on the horizon. You hope that the purchaser will not see those clouds and imagine that the money will just keep rolling in. Just remember EMI - a perfect example. A company centred around a product that was about to become worthless - the CD.

    Possible dark clouds - main customer in difficulties; disruptive technology or development coming; main contracts running out; IP running out; key staff wanting to leave; need for massive R&D to maintain position; competitor about to enter the market; legal problems; stock over-valued/out of date; future supply difficulties; I could go on and on!

    I am dealing right now with a software company that is struggling - it bought seven companies in as many years that all turned out to be close to worthless. All seven were earning, but software is always a race to the bottom, if you do not invest heavily in R&D and loads of marketing.

    Apart from that, it is as Amar stated. Read all the contracts and add up all the numbers.
     
    Posted: Mar 25, 2015 By: The Byre Member since: Aug 13, 2013
    #12
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