You may prefer to acquire an existing business to develop your business idea because it represents lower risk than starting a business from scratch and offers a drastic reduction in the start-up costs.

It is crucial to perform a due diligence before acquiring any target business in order to enable you understand what you are actually buying. As the new business owner you are not assuming responsibility for any unknown liabilities and the information provided to you should represent the true picture of reality. The due diligence must be carried out by an experienced professional who will usually break down his report in 8 fundamental areas depending on the type and size of the business.

  1. Overview of the business
  2. Financial Management (critical area)
  3. Marketing and Sales
  4. Human Resources Management
  5. Operations Management
  6. Information Technology
  7. Legal Management
  8. Regulatory and Environmental Requirements

Due diligence is usually accompanied with a business valuation performed by an independent accountant. There are many methods to estimate the value of a business and theoretically all the methods should result to approximately the same value. Still depending on the type of the target business, some methods are more relevant than others and hence they are given more gravity.

The most common methods of valuation are:

The sales agreement is the key document to conclude the purchase of the business. This agreement defines everything that you intend to purchase including business assets, customer lists, intellectual property and goodwill. If you do not have a lawyer to assist you in drafting the terms of the sale, you should at least read the agreement carefully before you sign it.