Anyone who has ever bought or sold a business, or has even thought about it, knows the term “due diligence.” However, most people severely underestimate the scope of what due diligence entails.
To fully understand due diligence, it helps to compare it with a more familiar term: “home inspection.” When purchasing a house, buyers typically make an offer “subject to” the findings of a home inspection. Due diligence is the business equivalence of a home inspection. Is the foundation strong? (legal documentation). Will the roof need to be replaced in a year? (financial issues). Does the vendor have clear title? (debt checks).
A scope checklist is below, but it should not be considered complete. Always consult a professional (lawyer, accountant, business consultant) to ensure you have covered all the bases.
- Due Diligence Checklist
- Corporate structure, articles, by-laws, minute books and capitalization
- Corporate, asset, and debt searches
- Financial statements
- Government obligations (PST, GST, payroll deductions, WCB, other, other, other…)
- Operational issues – documentation of policies & procedures
- Real property review
- Material contracts
- Employment issues
- Litigation (past, present, potential)
- Environmental issues
- Related party transactions
- Intellectual property (patents, trademarks, other)
- Licensing issues (liquor, food, etc.)
For more information and assistance with buying a business, contact us at 204-478-7266×110.