8 Due Diligence Steps Every Business Buyer in St. Augustine Should Take
Due diligence is the phase between signing a Letter of Intent and closing — your opportunity to verify every claim the seller has made and uncover anything they haven’t disclosed. In the Northeast Florida market, thorough due diligence is what separates successful acquisitions from costly mistakes. Here are eight steps every buyer should take.
Step 1: Verify the Financial Statements Against Tax Returns
Request three years of federal tax returns and compare them line by line with the internal P&L statements you’ve been shown. Material discrepancies need clear explanations. Have a CPA experienced in business acquisitions perform this analysis — they know what to look for and how to normalize the financials for a buyer’s perspective.
Step 2: Review Bank Statements
Bank deposits don’t lie. Request 24 months of business bank statements and reconcile total deposits with reported revenue. This cross-check catches revenue that’s been overstated in the financials but not actually received. Look for consistent deposit patterns and investigate any anomalies.
Step 3: Confirm All Contracts Are Transferable
Review every significant customer contract, vendor agreement, and lease for assignment provisions. Many contracts require the other party’s consent to transfer to a new owner. In St. Augustine, this is particularly important for location-sensitive businesses — confirm that your lease can be assigned and on what terms.
Step 4: Evaluate the Customer Base
Get a detailed customer list with revenue by customer for the past three years. Look for trends — are key customers growing, flat, or declining? Have any significant customers been lost recently? Understanding the health of the customer relationships you’re about to inherit is critical to forecasting future performance.
Step 5: Interview Key Employees
The employees who run day-to-day operations are often the most important assets in a small business. With the seller’s permission, meet with key employees to assess their competence, tenure, and openness to continuing under new ownership. A single key employee’s departure post-sale can significantly disrupt operations.
Step 6: Conduct a Legal Review
Your transaction attorney should search for any pending or past litigation, UCC liens, tax liens, judgments, or regulatory violations. Verify that all business licenses and permits are current and transferable. Check that any professional certifications required to operate are held by the business — not personally by the current owner.
Step 7: Inspect Physical Assets
For businesses with significant equipment, vehicles, or inventory, conduct a physical inspection and verify the condition matches what’s represented on the balance sheet. Get an independent appraisal for major assets if needed. Deferred maintenance or aging equipment you didn’t account for can significantly affect your post-acquisition cash flow.
Step 8: Spend Time in the Business
Before you close, spend real time inside the business — observing operations, watching customer interactions, and getting a feel for the culture and systems. You’ll often learn more in a half-day on-site than from weeks of document review. This is also your opportunity to understand exactly what the transition from the current owner will look like in practice.
Have questions about a specific business you’re evaluating? Contact Ryan C. Winter for guidance on your Northeast Florida acquisition.
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Related Reading
- What Do Buyers Look for During Business Due Diligence?
- Due Diligence When Buying a Business: A Buyer’s Checklist for Northeast Florida
- SBA Loans and Buying a Business in St. Augustine, FL
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