Before buying a business, a buyer should consider some due diligence issues. It can help to avoid purchasing a problematic firm. In the beginning, it is necessary to make a general overview of the company. It is necessary to find out why the previous owners sell the firm as it may be because of difficulties the firm faces. It is also essential to review business plans of the company and to know if they are effective or not. If the business is too complex, it may be unreasonable to purchase it because complex businesses often have problems with growing. Market review of the company can also be useful. If possible, the buyer should investigate geographical locations of the business because local branches may have different efficiency. Organizational structure should be studied, too (“Acquisition Due Diligence Checklist”, n.d.).
Then, it is necessary to study employees. Their types, roles, and relations with each other should be investigated. The acquirer should also analyze the philosophy of payments and their history in order to understand if the business has any issues with salary payments. For example, if the company froze some payments, it can show possible problems within the company. If employees participate in unions, the history of their relations and possible conflicts should be investigated. If there were any claims from employees, they are important issues to consider. Employee benefits and their history can show the company’s prosperity because if the firm is not efficient, it cannot pay large benefits (Acquisition Due Diligence Checklist, n.d.).
After that, the potential buyer should study financial results of the company. It is necessary to investigate financial statements for several periods to see if the company improved or worsened its financial indicators. In terms of financial analysis, it is necessary to analyze cash flows, expenses, one-time events, revenues, pricing strategies, the structure of costs and some other indicators. The correlation between assets and liabilities as well as the amount of patents and licenses can show the financial health of the firm, too (“Acquisition Due Diligence Checklist”, n.d.).
Finally, some other due diligence indicators should be investigated. The buyer should find out if the company had any problems with selling and marketing of its products. Supply chain, its members and efficiency are important in due diligence study, too. The buyer should examine production and transportation systems, relations with vendors, and any issues that took place. IT systems used by the company can show much related to its performance. Usually, if the firm uses IT effectively, it has more chances of being efficient and competitive in modern markets. Finally, the potential buyer should investigate all legal issues the firm had in order to determine its reliability (“Acquisition Due Diligence Checklist”, n.d.).
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