Due Diligence Defined
The term “due diligence” was initially termed in the Securities Act of 1993 of United States. With every passing year it gained significance in the market and proved to be beneficial for the people who consider it crucial while buying a new franchise, stock, business and securities etc. Basically we can sum up the concept of due diligence as “Do your Homework”.
Due Diligence as Applied to Businesses
Due diligence is considered as a vital part of decision-making process. There’s a complete and ample due diligence checklist which must be inspected afore buying any business. A reasonable company always contemplates thorough investigation when it buys an already established business or a new franchise. Following are the some key points of the checklist:
- Employment terms & Conditions:
The initial inspection is to analyze the basic turnover and present employment conditions of the business you are buying. Whether the business will offer the paybacks and boosts or not. If there are benefits, analyze the ways to keep it steady. Also, examine the employee’s turnover, like either you will be keeping the same old staff or there’s a requirement to replace them from new ones from your own company.
- Unsettled Litigations:
Do scrutinize whether the firm has ever indulged in any of the lawsuits, if yes, than what was the claim. Litigations and legal claims often bring negative publicity to the business and franchises. You must be aware of the litigations before buying a business. Be certain to steer clear of any lawsuits as it will damage the business both financially and reputably.
- Major Orders & contracts:
You should be aware, if there are any outstanding major orders and contracts which are still pending to be delivered. If all the income is being generated by one single or two major orders than your business will be solely dependent on them and if any case, those orders will be stopped than all your earnings and incentives will be on stake.
- IT systems and Technological advancement:
You must also inquire whether the current employees are provided will latest IT machineries and technological advancements. If not, than it might prove to be a costly process to bring the complete business on the latest technological equipment. Hence, it’s really significant to keep this point in mind while making a final decision.
- Lucrative Management:
Every business keeps a plan to move forward commercially with a pace of time. Do analyze that the business has implemented proper strategies to market their business and properly researched their market and customer buying patterns etc. As if they have not done theses analysis before than you will have to run them yourself and it will also incorporate additional cost to you.