The phrase due diligence refers to the reasonable steps a person must take to satisfy legal requirements, especially when they are in the process of buying or selling something. When that something happens to be a business, then you will need the help of a Lynnwood business lawyer to perform proper due diligence.
Every single business transaction can involve a group of people who will have the power to make important decisions about money and assorted other matters. You need to be aware of what the bare minimum will be in any business transaction.
Best Times to Start a Business
When it comes to a business, a person could be starting a business, buying a business, or selling a business. All three of these scenarios involve their own set of due diligence requirements.
When you are starting a business, you will need to first determine the viability of your business idea, usually through market research that will indicate how to market your product or service and also provide feedback on the idea. You will next need to know how you will structure the business with attention given to taxes, licenses, and insurance needs.
Business structures often include sole proprietorships, limited liability companies (LLCs), general partnerships, limited partnerships, C corporations, and S corporations. You then need to develop a business plan that includes an executive summary, business description, market research and strategies, management and personal bios, and financial documents.
You will then have to obtain the necessary licenses and permits before registering the business and getting your finances in order. After you find an office or retail space, you can begin getting the word out about the business and seek the necessary insurance.
If you are trying to buy a business, you will absolutely have to review all of the financial information about the business, including financials such as income statements, cash flow statements, balance sheets, general ledgers, and accounts payable and receivable; credit reports; tax returns for at least the past three years; all debts, their terms, and any contingent liabilities; analysis of gross profit margins; analysis of fixed and variable expenses; gross profits and rate of return by each product; and inventory of all products, equipment and real estate, including total value.
You then need to review the business structure and its operation, as well as all of its material contracts. Review both customer information and employee information and check for any legal issues.
Review physical assets, real estate, and all intellectual property. You will then be prepared to purchase the business.
When you are selling a business, due diligence will involve building a team that includes a lawyer, a broker, a certified public accountant (CPA), an appraiser, and a personal financial planner. You will then get an accurate business valuation and all financial and tax documents.
You will want to address all legal or liability issues, document all intellectual property, and outline your operations. Produce a complete customer list, prepare an organizational chart showing total employee headcounts over the past three years, and prepare human resources who can speak to your business’ employee turnover rates, benefits, and other matters.
Finally, you will have to address marketing concerns such as major competitors, market research, and your own marketing materials. Taking all of these steps will typically satisfy due diligence expectations.
Call Us Today to Schedule a Free Consultation with a Lynnwood Business Lawyer
Do you need help performing due diligence for a business transaction in Washington? Bountiful Law has the experience you need to be sure that every aspect of a business transaction is handled properly.
Our firm will work closely with you throughout your entire transaction, so you do not have to feel like you are handling anything on your own. Call 425.775.9700 or contact us online to schedule a free consultation so we can go over all of the details about your business transaction and begin taking the first steps to make your intentions become a reality.
