Are you looking to buy a business in New York or New Jersey? Conducting due diligence is a crucial step to ensure that you make a smart investment. Here are five things to carefully examine during due diligence:
- Financial records: Review the company’s financial records to gain an understanding of its financial health. Verify the accuracy of these records by reviewing bank statements, tax returns, and invoices. Enlist the assistance of a tax accountant experienced with mergers and acquisitions to ensure accuracy.
- Operations: Evaluate the company’s day-to-day activities and any potential risks. Examine the business’ inventory, supply chain, vendor relationships, customer base, production processes, and workforce. Assess any potential operational risks, and determine if the business has contingency plans in place. If you are taking over a commercial space or purchasing equipment, carefully inspect it and bring in qualified service providers who can help you understand if any repairs are needed and when it will need to be replaced.
- Employees: Review employee contracts, offer letters, policies, handbooks, and benefit plans to ensure they follow local labor laws. If the business employs union members, review the collective bargaining agreement to understand the company’s labor obligations. Hire an experienced labor and employment lawyer to help you.
- Understand the Market: Evaluate the business’s competitive landscape, including industry trends, market size, and growth potential. Look for any unique advantages the business has that could give it a competitive edge. Understand who your competition will be.
- Legal documents: Review all legal documents related to the business, including contracts, licenses, permits, and intellectual property filings. Ensure that all contracts and agreements are up to date and may be assigned from the Seller to you. Quickly gain an understanding of whether the business owns or leases its commercial space and, if it does, any limitations on that lease being assigned to you.
By carefully considering these issues, you can ensure that you make a smart investment decision and set your new business up for long-term success.
If you decide to proceed with the acquisition or if the Seller asks you to sign an NDA (a.k.a. a non-disclosure agreement) before diligence starts, engage a reputable New York or New Jersey business lawyer who will ensure that your rights are protected in the relevant transaction documents.
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