Due Diligence When Buying a Business: A Buyer’s Checklist for Northeast Florida
Due diligence is the phase of a business acquisition where you verify that everything you were told about the business is actually true. It’s your opportunity to confirm the financial performance, understand the risks, and make sure you’re not buying someone else’s hidden problem. Here’s what a thorough due diligence process looks like for buyers in Northeast Florida.
Financial Verification
Start with the financials. Request three years of federal tax returns and compare them to the P&L statements provided by the broker. Look for consistency between what was reported to the IRS and what was presented in the CIM. Bank statements should reconcile to P&L revenue. If there are material discrepancies, ask for explanations, and don’t accept vague ones.
Accounts Receivable and Payable
Review the AR aging report. Understand how much is current, how much is 60-90 days outstanding, and how much is likely uncollectible. Do the same for accounts payable, understand what obligations will transfer and when they’re due.
Contracts and Customer Relationships
Review all significant customer contracts. Understand which customers represent the largest revenue share, what their contract terms are, and whether any have change-of-control provisions that could allow them to exit the relationship upon a sale.
Leases and Real Estate
Read the lease in its entirety. Note the term, the rent escalations, the assignment provisions, and any landlord consent requirements for a change of ownership. Get a copy of any correspondence with the landlord about renewal or assignment.
Employee Records and Agreements
Review the employee roster, compensation structure, any employment agreements, and any non-compete or non-solicitation agreements with key employees. Understand who is critical to the operation and whether they’re likely to stay.
Licenses, Permits, and Compliance
Verify that all required business licenses, professional certifications, and permits are current and transferable. This is especially important in licensed industries like HVAC, plumbing, electrical, healthcare, and food service.
Equipment and Asset Inspection
For businesses with physical equipment, vehicles, or machinery, a physical inspection by a qualified technician is worth the cost. Know what you’re buying and what it will cost to maintain or replace.
Buying a business in the St. Augustine or Jacksonville area and want guidance through the acquisition process? Contact Ryan C. Winter for a buyer consultation.
Related Reading
- What Do Buyers Look for During Business Due Diligence?
- 8 Due Diligence Steps Every Business Buyer in St. Augustine Should Take
- The SBA Loan Process for Buying a Business in Northeast Florida: What to Expect
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