Due Diligence for Business Owners
There comes a point in most businesses where the business owner wishes to sell their business or transfer the business to the next generation. It is important for all businesses to have an appropriate exit strategy in place at this time.
Prospective purchasers or transferees of a business will likely undertake comprehensive due diligence investigations to determine that the business is being run in a way that will not expose the purchaser to potential risks and liabilities once they have acquired the business.
When selling or transferring a business, the Vendor ought to be clear on the structure of the business and on all the necessary elements that need to be transferred to the purchaser to ensure the continued operation of the business.
The kind of issues that will need to be considered by a Vendor in carrying out their due diligence investigations will be:
1. Whether the business is being run as a sole proprietor, a company or through a trust. It may be appropriate to change the structure of the business.
2. Whether there are policies and systems in place for dealing with clients and employees of the business.
3. Whether the business has been keeping up with legal compliance requirements, for example, registering and renewing any required licences for the operation of the business e.g. food licences, advertising licences, plant registration etc.
4. Whether the business has all required insurances and has kept the insurances up to date.
5. The employment structure of the business and whether all personnel have been appropriately employed and contracted.
If a business has been running for a number of years, it is likely that some aspects of the business may require work to bring them up to date to comply with new laws and regulations. It may take a year or two to implement the required steps and systems to ensure that the business will be ready for a due diligence review by a prospective purchaser or transferor.
It is important for the Vendor to carry out their own due diligence investigations well in advance of when they intend to sell or transfer the business. This will ensure that the business is likely to meet the due diligence requirements of a prospective purchaser or transferor and facilitate the sale or transfer process.
McLaughlins Lawyers can review your current business structure, in conjunction with your accountant, and assist you with adjusting your structure to more appropriately fit your business needs and business succession plan.