There are plenty of twists and turns involved in a Diligence For Investors business although conducting due diligence seems to be the most daunting task of the buyers. With this procedure, a business wishing to acquire another can evaluate the seller from different perspectives before consolidating the decision to purchase. Although businesses perform different procedures before buying another business, due diligence involves a number of other steps playing a significant role in the private equity funds, and also while checking the legal history of the business. It is not one of those decisions that focus on the general considerations for buying a business, but probes specific elements related to it, and the buyer benefits the most from this process. It unravels the financial matters and the potential liabilities in a business to ensure that nothing remains uncovered in the business.
Steps in due diligence
What are the steps involved in due diligence?
When it comes to conducting this process, hiring the top due diligence firms in India for the businesses in this country is the first step that companies must undertake. This step takes place when a company completes the initial formalities and expresses the intention to buy a business before entering into the formal agreement of purchasing a business. The following points will explain.
1.The firms responsible for due diligence usually investigate all the documents and the business records of the seller. It must also explore all those documents that might become a source of potential liability of the buyer along with the agreement of sale and purchase. If the seller is involved in any lawsuit or procedure of litigation, the lawyer can help the buyer while making the decision.
2.It is essential for the experts to spend substantial time at the location of the business to communicate with the senior level employees such as the managers and the executives. They can also talk to the employees of the company for general investigations and check the volume of sales against the list of the customers to verify whether the list of customers the seller has provided actually exists or not.
3.Due diligence also involves the future plans to expand the business and finally, it must note the discrepancies between the things the seller has reported and whether anything else is going on behind the back. In the absence of satisfactory answers, the probe needs to be stronger and just remember that if anything appears wrong, you have to track the actual scenario.
Legal and financial issues
The financial and legal due diligence involves a multitude of steps to be performed by the firm you have hired for completing the process. When it comes to unraveling the financial aspects of the seller, you must ask for the audited financial statements. Asking for the statements of income tax and cash flow combined with the balance sheets and the business tax returns during the past three to five years is necessary. You have to explore the following:
The amount of bad debts that a business writes off every year ad does it pay the taxes on time?
What are the profit margin and the outstanding liens in the business?
Does the business collect its accounts receivable timely?
For exploring the legal issues, you have to look for the consulting and the professional agreements such as the insurance policies, permits and license. It must also look into, all the documents related to the intellectual property, insurance policy, along with trademarks and patents and all the documents related to the litigation in which the company is involved. The following aspects must be covered in the legal due diligence.
Has the company acquired its rights in its intellectual property?
Is the business insured and are the permits and the licenses renewed recently?
What is the scope of the lawsuit in which the company might be involved and what are the potential costs, risks and damages?
Are the agreements applicable?
Business structure and employees
Depending on the structure of the business, you have to ask for the documents related to the meetings held with the Board of Directors and the shareholders and understand the following.
Does the business comply with the regulations?
Does the structure of the business synchronize with the plans of growth or expansion or do you need to change the structure?
If you decide to buy out the shareholders, what is likely to be the cost?
When it comes to due diligence of investors, you must also request for the employee handbooks, agreements, the organizational charts, benefits they get, information regarding the salary and the other confidential agreements. The following things are to be reviewed.
Is the company involved in grievances with the employees?
So the employees have plans to form a union or getting tempted by a third-party for such formations?
Do the policies for the employees indicate the chances of litigation?
Products and services
While the due diligence for sale of business forms an important aspect for the seller company, the procedure carried out on behalf of the buyers must also explore the products and the services the company sells. You must ask for the catalog or the list to find out the competitiveness of the products in the market. Reviewing the prices and the brochures is also important along with the documents related to the intellectual property.
Finally, the rest of the documents to be explored include the marketing plan growth opportunities and the analysis of the markets. After the completion of the procedure, the investors can get a clear picture of the current standing of the business and decide whether the price they need to pay for buying the company is fair or not.