Due Diligence

Definition

An investigation of the facts surrounding the business prior to making the business purchase decision.

What It Means

Before you decide to buy a business, you will need to make sure that the seller’s representations can be confirmed by documented facts. The process of due diligence aims to confirm the findings and observations the buyer has made during the early business investigation and financial analysis. The key areas of due diligence include:

  • Financial review
  • Legal review
  • Suppliers and customers review
  • Employees and employment contracts
  • Businesses leases review
  • Competitive review
  • Any other areas that could materially affect the buyer’s ability to acquire and successfully run the business

Due diligence in small business buying generally takes place after both parties have accepted and signed the business Purchase Agreement. The scope and duration of due diligence are part of the agreement between the business buyer and seller. Successful conclusion of due diligence is a key contingency of most small business Purchase Agreements.