When buying a business, the purpose of due diligence is to make sure you fully understand the company before making a decision to proceed with the transaction. It’s important not only to thoroughly analyze the financial information, but also to understand customers, suppliers, employees, marketing, insurance, contracts, licenses, retirement liabilities, environmental issues, potential litigation, and many other items that may have a major impact on the success or failure of your future company.
Sometimes due diligence kills deals (which is a good thing), but more often, it helps the buyer understand both how to succeed going forward and how to negotiate a fair price. When you’re a seller – it’s important to know what to expect and be prepared for due diligence. The sooner you can start preparing your company for sale, the better.