When two businesses in Texas decide to combine forces and move forward as one, they have to consider multiple factors specific to each entity to ensure success. This is where due diligence comes in.
Understanding due diligence
Due diligence is the process of investigating a potential business partner to confirm that they are who they say they are and verify that there are no hidden skeletons in their closet. This process can help identify any potential red flags that could jeopardize the success of the merger or acquisition.
Why due diligence is important
Due diligence can make the buyer feel more comfortable with the decision to move forward with the merger or acquisition. It can also help protect the buyer from any potential legal issues that could arise down the road.
For the seller, this process can provide some peace of mind knowing that the buyer is taking the time to get to know their business and verify that everything is in order before proceeding with the deal. Further, the rigorous financial examination may reveal the real market value for the business, which may be higher than what they initially asked for.
Other benefits of due diligence include:
- Allowing the buyer to get to know the seller and their business better
- Helping to set realistic expectations for both parties involved
- Giving the buyer a chance to negotiate a better price for the business
- Reducing the risk of post-transaction surprises
Due diligence checklist
When conducting due diligence on a potential business partner, it’s important to cover all your bases. For instance, consider looking at:
- Financial statements of all business transactions conducted over the past three years
- Tax returns for the past three years
- Details of any current or pending lawsuits
- A list of all current and former employees, customers and vendors
Due diligence timeline
The amount of time needed to finish due diligence is contingent on the company’s size and simplicity. You could probably investigate a small, simple business in just a matter of weeks. A larger, more complex business may take several months to investigate.
A background check in Texas is essential to avoid overpaying for a business or inheriting legal problems, debt and a bad reputation. It may seem long and complicated, but if you know what you are looking for and how to get it, the process might go smoothly.