Buyers often wonder how they can confirm a business is actually a good purchase - and the answer to this musing is due diligence! In this article, we will be discussing a few areas to pay attention to during the due diligence process, that can often go overlooked.
1099 & W-2 Employees
During due diligence a buyer will want to review the employee roster and make sure they understand which employees are 1099 and which are W-2 employees. This differentiation can have implications on the business’s taxes and it is important to make sure you are aware of the full picture. Of course, you will also want to get a feel for key employees and how they fit into the business.
Retirement & Benefit Plans
When you takeover a business, it will be important for you to provide similar retirement and benefit plans to your new employees. So understanding what the current owner offers and how these will transition to your management is another item that is deserving of review during due diligence. While you’re at it, does the company have an employee manual and is it up to date?
Legal Documentation
There are a lot of items to consider under the title of legal documentation. You will need to review the company’s tax documents, and make sure they are sound and up to date. You will want to make sure the business has all of its proper licensing, and that its intellectual property is protected well. This is an area you will want to spend some real time on to gain comprehension.
Evaluating easy to overlook areas is essential to making sure you are about to make a good investment. Luckily, your business broker will be guiding you through the entire due diligence process! Your business broker has been down this road a number of times and knows what to look for, the right questions to ask and how to identify pitfalls that may arise.
For most people, the purchase of a business is one of the largest they will make in their lifetime and as a brokerage firm we want to ensure this is a largely positive experience for our buyers. This is why we always encourage the use of a professional broker - so they can advise clients using their years of expertise. To answer any remaining questions on the business purchase and due diligence process, we’d like to invite you to schedule a consultation with one of our brokers!
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Rachael Holstein joined the Transworld Team in 2016 as Marketing Coordinator. Her working experience has been largely focused on Business Development and Marketing in the finance, architecture, property management, and information technology industries. A long time resident of Cleveland, Ohio, she attained her Undergrad from John Carroll University and a Master’s Degree in Global Interactions from Cleveland State University. She relocated to Denver in 2013 for a change of scenery and a bit of adventure.
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