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Help with due deligence list.

I am between the LOI and purchase agreement on an asset sale. I have signed copys of the last 3 yrs. taxes. The last 3 yrs. P&L, balance sheets all corelate back to taxes. I have YTD 2010 financials. I have last yrs. customer list with project price. I have complete asset list with bases. I have complete lease history waiting on meeting w/landlord to discuss new terms. Funding is in place. My attorney is on retainer waiting on go a head, with his part. What else should I be doing?

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Answers (1)
Buy-a- Company

Sounds like you've got the most important parts covered. But there are so many little areas to check, depending on the type of business. One thing to do would be to also get the credit card merchant statements (assuming they take credit cards). Then, match up the bank statements, credit card statements, P&L, and tax return to make sure the numbers are real.

Look for any single customers that make up a large (say, more than 10%) percentage of the income. Try to determine (do NOT contact them without the seller's permission) their likelihood of remaining. I have seen cases where some of the larger customers bolted after the sale. Either that gave them an excuse to shop around, they don't like the new buyer, they have a perception that the sale meant the business was failing, or were only customers because of some personal relationship with the seller.

Look for positives, too! Try to find the 25% of the marketing budget that is wasted on non-performing ads (most businesses have at least 10-25% of ads that should be replaced with better-performing, but the seller kept them because of how they remembered how they once worked, or thought they were funny, or for ego, etc.). That is a great area for growth.

Check with suppliers (with seller's permission) to renegotiate terms. Most sellers have long-time suppliers that they are overpaying, for some of the reasons above, or for simplification.

You are on the right track with the landlord. DO NOT be afraid to negotiate better terms than the seller had. The commercial real estate market is in the toilet, and ready to fall further. The landlord is negotiating from weakness.

At least 10% of the current employees should be fired, or will leave soon. Start looking for talent to add to the team.

Ask your CPA to find ways to optimize the cash flow.

I could keep going. Sounds like fun!

Mar 31, 2010

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