One of the most important things involved in the process of selling any kind of social businesses is due diligence. If you’ve found a company that seems to be a good purchase candidate, it is important to conduct a careful analysis of that company. Here are some important things that you should investigate during the due diligence process.
Profit & Loss Balance Sheets
First of all, you should find out if the social business you are considering buying is a profit or non-profit company. In both cases, you will need to look at the profit and loss balance sheets. These sheets and accounting statements describe the financial performance of the company you are buying. It is strongly recommended to review five to seven years of profit and loss history in order to get a clear idea of the overall financial pattern for that company.
Supporting Financial Documents
The next very important thing that you should check is the supporting financial documents. These documents include receivables and accounts payable ledgers, along with depreciation schedules and other related reports. As a potential buyer, you can request a more thorough analysis that may include a review of bank records, vendor invoices, tax returns, and sales etc. Other supporting documents that should check include employee files and equipment maintenance records.
Premises & Equipment Lease
You should hire an experienced attorney who can review premises and equipment lease agreements. This will help you understand the lessee responsibilities that you hold upon those agreements.
Business Permits & Licenses
When buying social businesses, you should carefully check the validity of permits and licenses. It is strongly advised to check these permits and licenses with the issuing agency. This will help you eliminate any doubts about these permits and licenses.
List of Assets
As a potential buyer, you should check all those assets that you will be buying. A complete list of all assets that are to be sold to you will be referenced shortly before the closing of the escrow. That’s the right time when you should investigate all of the machinery, equipment and other facilities of the social business. This will help you make sure that every asset is in proper working condition.
Industry Specific investigation
It is another very important part of the due diligence process. In this investigation, you will need to check the company’s equipment in accordance with the new environmental regulations. You should also make sure the company owner is using up-to-date vending machines. If it is using old or out-of-date vending machines, the owner may not be able to outperform its competitors that are using new vending technology.
Due diligence is undoubtedly a critical process, but it very important because it helps you identify the flaws in a social business company. If you are aware of these flaws, you will be able to secure a good purchase deal and make necessary changes in the company after acquisition. That’s why carefully investigate all above mentioned aspects when buying any kind of social businesses.