When buying a business you want to examine your goods before you buy. Nobody wants nasty surprises and to protect against them takes a bit of work. Essentially, look for reasons to not invest in the company. Due diligence involves looking closely at all the company's records: statutory financial statements; internal process controls; management accounts, budgets, analyses and projections/forecasts; contracts with employees, suppliers, customers and others; insurance policies... and then putting it all together. But there's more. Simply examining the inventory records would mean nothing if the stock on hand falls far short of what the books suggest. The research needs to go much further.
Many of the potential buyer's questions impose a considerable time demand on the person selling his business. Sellers expect this, it's par for the course. Some business brokers offer this service, as do accountants and some consultants. But it's possible for buyers to do the due diligence themselves, particularly if they consider the amount involved doesn't warrant the expense of professional advisers or when the business is a relatively simple one (perhaps just a domain that's been rented out i.e. no stock, employees or suppliers).
Here are some of the questions asked in the due diligence processs:
For a greater insight into due diligence, see our business knowledgebase (will open in a new window) .