The following list provides you with a guideline of the key elements involved in a due diligence exercise. As all businesses are somewhat unique some of these items will apply, others will not. As well, you may wish to have your lawyer, accountant or a business consultant perform some or all of the due diligence tasks listed below.
The Business:
Type – What kind of business is it? Would it be considered a service business, manufacturer, retailer, software design, distributor, ecommerce (internet) or other? It is important that you see the business for what it truly is.
Division or Business Unit – Is the business that you are investigating a division or a business unit of a larger corporation? If so, identify what common services that the parent may be supplying. Look at the divisions’ previous financial statements and determine if they accounted for those services at market value. When creating your budgets include the added costs to provide these services yourself at market value.
Name – Does the business operate under its registered corporate name and/or under one or more dba or fictitious name identities?
Franchise - Is the business a franchise? Does the current franchisor allow a franchisee to sell the business and have the new owner maintain the franchise?
If, in fact, this is a franchise then it is important for you to perform some due diligence on the franchisor. As part of your due diligence you should definitely meet with or at a minimum talk to the franchisor by telephone. I also highly recommend that you allow your lawyer to review any and all franchise documentation, contracts and agreements prior to proceeding with any offer to purchase the business.
Franchise Specific (assumes franchise is transferable or sellable):
Length Of Term Left On Franchise:
Percentage Of Sales Paid To Franchisor:
Other Fees Paid To Franchisor: