Due Diligence/Confidentiality Agreement
Conducting a due diligence is an integral part of the purchase of any business. It involves the gathering of all information in respect of the business.
Prior to the conduct of a due diligence it is common for the Purchaser and its advisor to enter into a Confidentiality Agreement to preserve the confidentiality of the information that may be disclosed by the Seller.
It is also common for a Seller to insist that a Contract be entered into prior to a due diligence being conducted on the basis that a sale may be subject to a satisfactory due diligence being conducted.
External factors that may impact on the growth of the business can include:-
- The economy;
- The nature of the industry whether competitive or declining;
- Is the position or geographical location of any importance;
- Is accessibility an issue for employees, customers and suppliers of goods and services.
Checklist of all Information to be reviewed includes:
There are a number of documents and aspects of a business which should be reviewed when acquiring that business, including:
- All financials of the business including S.52 Statement (if the business to be purchased is under $350,000);
- The fixed costs of the business;
- What factors will impact on the business profitability;
- Lease of the business premises and any variations and renewals;
- Disclosure Statement accompanying the Lease to determine outgoings of the business premises;
- List of plant and equipment and their suitability for the business;
- List of employees reflecting their terms of employment and entitlements;
- List of all material contracts;
- List of all intellectual property including business name, trademarks, design and patents, logos and software licences;
- List of key personnel involved in the conduct of managing the business;
- The restraint and non-competition that will need to be imposed on the Sellers to quarantine the business goodwill;
- Whether the sale is of a “going concern” so that no GST is payable by the Purchaser or alternatively is it a sale of assets only whereby GST is payable;
- Is the Seller/Purchaser registered for GST?;
- Are systems in place such that the business can continue to operate without significant attrition of clients.