Business Checklist

Business Checklist

A prospective buyer should request access to business financial records. This financial information is key to understanding past profitability of the business as well as projected future success. If the seller cannot provide adequate information, the buyer must make the decision to either terminate efforts or move forward at his/her own risk. If bank financing is involved, the lender will require adequate financial information.

Obtain the proposed selling price and determine what is included in the sale. How much of the selling price is allocated towards real estate, goodwill, equipment, inventory, etc.? What is the actual market value of those assets?
Determine the type of sale. Will it be an asset or stock purchase?
Establish whether or not the buyer will assume any business obligations or debts such as unpaid balances of accounts payable. If so, obtain all current loan terms, documents, etc.
Acquire business balance sheets & income statements (for at least three year-end statements & interim for current year), and federal business tax returns (at least the past three years). Confirm that all past taxes (state and federal) originating from the business are paid.
Determine whether additional working capital will be needed to conduct business operations after the sale.

Business and Operational Information

Obtain business history information. What kind of reputation does the business have? How long has this business been established? Include the development/progress of the business and ownership structure.
Determine whether upgrades are required as well as identify needed changes to business operations. Are any leasehold improvements, equipment purchases, or general updates to the business necessary? What would be the costs of these updates?
Obtain a copy of the franchise agreement, if applicable. Will another franchise fee or a transfer fee have to be paid?
Obtain a copy of the proposed buy/sell agreement (unsigned) or information in writing about the proposed terms of the buy/sell transaction.
Request an explanation of seller's reason for selling the business.
Investigate any business leases for equipment, property, etc. Are leases transferable?
Investigate zoning laws to ensure compliance.
Determine whether or not the buyer will be able to continue utilizing the firm's intellectual property such as business name, patents, trademarks, trade secrets, product names, and any other proprietary information.
Research any licenses that may be required to maintain business operations. What are the costs?
Determine whether or not the seller will offer a non-compete agreement after transfer of ownership.
Investigate whether there are any customer product warranties issued by the company that may be future obligations.

Management/Personnel Information

Learn about staffing requirements and key employees. Analyze the roles and salaries of all employees in the business. Will you keep existing employees and/or key management during the transition? Do you have the experience and expertise to manage this new acquisition?
If applicable, obtain a copy of existing employee contracts and benefit packages.
Determine the likelihood that existing employees will stay with the business after the transfer of ownership.
Establish whether or not the seller is willing to stay on for a period of time after ownership transfers in order to provide knowledge and support.

Market and Industry Information

Identify the products/services the firm provides. What is the current pricing system? Do you plan to alter the product/service mix? Are existing inventories and supplies included with the sale? What level of inventory will be in the business at the time of transfer? Does inventory consist of high quality saleable inventory or predominantly old inventory that will be difficult to sell?
Acquire a list of competitors, suppliers, and clients/customers, if possible. Can you retain customers and sustain revenues? Will existing vendors offer the new owner the same terms as the current owner? Will you forge new relationships with different suppliers or continue with current operations?
Determine the market area of the business and method of distribution. Fully understand the business's customer geography and target market. How large is the current customer base? Is there an opportunity to grow the customer base?
Research the industry. Is this industry growing? What are its strengths and weaknesses? Are their any emerging opportunities or threats? Gather information on current demand, seasonality, buying patterns, etc. Consider changes in the business environment which would affect operations and profit potential. The seller may have access to industry journals and information. In addition, outside industry research will likely be necessary.

Conclusion

This checklist is not an exhaustive list of information to obtain about the business. Rather, it should serve as a starting point. As you carry out your investigation, you may determine other questions or needed information. In addition to obtaining information from the seller, you must also consider future plans under your ownership and how changes would influence operations and cash flow.

There are numerous details to consider before purchasing an existing business. Thus, it is important to conduct a thorough investigation to minimize the chance of "hidden surprises." Remaining objective as you carry out your investigation of the business is critical so that you can make the right decision as to whether or not to move forward or walk away.