Editor's Note:   This is the 8th in a series of articles on buying a business: the financing, the negotiations, the process, and the how-to's.
 

Due Diligence

by Doug Perry
Commercial Realtor ®

This is where your attention to detail is the most important. After your offer has been accepted, the meter is running on deadlines to perform, review, and accept the information provided by the seller. Below is an example of the items that you will be reviewing with your accountant, attorney or anyone that you feel will help in your decision to buy the business.

1. The financials -- tax returns (Schedule Cs), profit and loss statements, and bank statements to show deposits, or any other financial information you may request.
   
   
2. The lease -- if the seller is leasing a space you are entitled to a copy of the lease for your review and acceptance.
   
   
3. Business flow -- study of the business flow and how the business produces its revenues, possibly sitting in the business for a day with the permission of the seller.
   
   
4. Inventory -- review of all of the furniture, fixtures, and equipment as part of the sale.
   
   
5. Questions -- any questions you might have for the seller, submitted in writing for your protection.
   
   
6. Training -- specifics on the training you will receive.
   
   
7. Reports -- review of any sales reports, production spread sheets for time periods etc.

As you can tell, this is the period provided to you before you make the commitment to purchase the business or back out of the transaction. If you are satisfied with "all of the above" then you will sign a contingency removal form. Once all of the contingencies are removed, you can close escrow.

Licenses and Permits

In the purchase of any business there will be agencies you will need to contact before you can take possession of the business. Examples of these types of agencies are listed below.

1. IRS -- for a tax ID number for payroll taxes
   
   
2. Franchise Tax Board - State of CA -- for your state ID number for payroll taxes
   
   
3. Business license for the county or city your business is located in
   
   
4. Workers Compensation Insurance -- you can use the seller's current carrier as a referral or seek out your own carrier.
   
   
5. Telephone company -- to change the billing and number into your name
   
   
6. Utility company -- to change the billing and ownership into your name
   
   
7. Fictitious business name -- to change the name of the business into your name
   

As you can see, there are numerous agencies that will need to be contacted before the transfer can be completed.

The Final Word: Success is in the details.