The due diligence process involves the investigation, review and analysis of a target business by a potential buyer – and sometimes of a potential buyer by the seller – and is conducted through document review, on-site inspection and interviews.

For buyers, your primary goals in the due diligence process are to understand the assets and liabilities of the target business and to understand the target’s scope of obligations.

Buyer’s key considerations:

• Organizational documents
  
• Shareholder/capitalization issues
  
• Material contracts
  
• Contingent liabilities
  
• Compliance records
  
• Legal opinion
  

For sellers, be prepared to gather the pertinent information that you will need to document, as well as how you will inform your staff as you go through the due diligence process.

Seller’s Key considerations:

• Prepare and maintain accurate financial statements on the business in addition to tax returns
  
• Account for revenues and expenses on a consistent basis
  
• Recognize revenues by category so you can define what is transferable
  
• Properly account for true business expenses and don’t manipulate expenses in order to minimize taxes