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INSIGHTS BLOG

helping to get valuable business information to you faster

Pre-Purchase / Pre-Sale Due Diligence

February 12, 2017

Magnolias Business Brokers offers a wide range of due diligence options to choose from. Packages will range in fees from complementary to retainer style arrangements; however, we want to make sure our clients are satisfied and have all the information they are looking for when either selling or buying a business.

 

For pre-sale due diligence, we will simulate the process of buyers and identify weaknesses and points of improvement in your business. This way we can make the appropriate changes prior to a sale, and in turn, command a higher value. Pre-sale due diligence is all about reducing risk to the potential buyer, as typically speaking, the more risk a buyer sees, the less value they will offer.

 

On the other side of the coin, we offer purchase due diligence options to buyers. We will come in as either your representative, or as a third party to identify information from the business in question. A report summary will be formed to help the buyer make the most informed decision possible when buying a business. We understand that buying a business is a major decision for many people, we take this diligence period very seriously and are careful not to leave any rock un-turned.

 

Here is some commonly asked questions that we get from our clients:

 

1) How much information do you need during pre-sale due diligence?

 

This is up to you, we will be careful to stay within your boundaries; however, also understand that the more we know about your business, the easier it is for us to identify weaknesses and potential improvements that can be made. These improvements will translate into higher offer prices at the time of sale (and we will explain for any weakness, how improvement will translate into value).

 

2) Do you have forms and checklists of what to look for?

 

Yes. We have comprehensive forms and checklists developed for both pre-sale and pre-purchase diligence activities. But we will also stray from the forms from time-to-time, every business is different and required special requirements in areas the forms may not cover.

 

3) Is my property / lease valuable to the purchase price, and should it be included in the purchase?

 

This will depend on a multitude of factors. Is your business relocatable, is specialized equipment required? What is retooling costs? ... We will look at your business scenario and make a recommendation based on what we think will yield the highest return, we will provide reasoning and backup to support our opinions.

 

4) How many years of tax returns will I need to have prepared?

 

A minimum of 3, but there is no maximum. The more you have, and the trend that you can show a potential buyer is beneficial as part of a sale.

 

5) Should I buy or sell a business with an Asset or a Share Sale?

 

This is a complicated question. At the time of either buying a business or selling one, we will sit down with the entire purchase team of lawyer, accountant, banker and broker and determine the best option for the type of business, lifestyle, plan and stage of life of the individuals in question. This also usually becomes a negotiating point, with the seller and buyer wanting different options.

 

 

 

 

 

 

 

 

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