January 30, 2018 / by admin

Due Diligence

due diligenceWhat is Due Diligence?

Due diligence is the care that a reasonable person exercises to avoid harm to other persons or their property. In plain English, it is simply doing your homework. Before putting your business funds to work on anything, you should make yourself an expert. Often, due diligence is used to describe the investigation done before purchasing another company, so let’s start there.

Why do I need Due Diligence?

Let’s assume that you are planning to buy out one of your competitors who is retiring. The business is attractive to you because it’s perfectly positioned in an area of town that is tough for your business to reach. Before you purchase the business, you (often with the help of professionals like Logiframe) will perform due diligence.

What is the product of Due Diligence?

When applying due diligence to your ventures, you’ve got to have skills in accounting and auditing. Some examples of questions asked or procedures are as follows:

-Does the business have healthy cash flow?

-By looking at the books, can you tell where the revenue stream is coming from?

-How reliable are its financial projections and what multiple is it placing on those earnings?

-Are profits going up or down?

-How big is the market for the company’s products or services?

-Is the market growing, shrinking or stagnant?

-Are there any major new competitors in or coming into the area that could negatively impact earnings?

-What kind of online presence does the business have, and how does it compare to its competitors?

-If the company has physical assets, are they valued correctly and fairly?

-Are there any hidden liabilities?

-Are the company documents complete? (Articles of incorporation, board meeting minutes, tax registration, etc.)

-Is the business up to date on its taxes?

-Does it lease property? If so, when does the lease end?

-What insurance information is provided and what is covered?

-Are there complete employee files including salary and benefits?

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