What is Due Diligence and what is involved?

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Due Diligence is part of the Purchase Agreement for a business that gives the buyer the opportunity to inspect the financials, equipment, fixtures, machinery, etc.

The usual time frame can be anywhere from 10 to 30 business days, depending on the business.

This time gives the buyer the opportunity to inspect the financials to make sure they are as they have been marketed. You may want to bring your CPA in to help you. During this time fixtures are inspected to make sure they are all there as seen and described, the equipment is in proper operating order and no necessary repairs are required. If there is machinery, i.e. a lathe, CNC machine, printing press, embroidery machine, etc. you will want to inspect them and make sure they are in proper operating order and have been maintained. The same goes for any vehicles that may be included in the sale. You will review the lease if one is involved to see if it can be assigned and if it offers options to renew or will the landlord prefer writing a new one with you.

If inventory is involved you will want to inspect to see if there are any obsolete, older and slow turnover items which may be included and if there is any damaged inventory.

Never be fearful of asking questions about anything that is not proprietary, i.e. vendors names, customers names, etc. which you will know after closing. A simple example would be that you would not receive Cokes secret formula until after the closing.

This is a brief explanation of the Due Diligence period which is crucial so that you can verify everything to ensure it meets what you were told or read.