• October 2018
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What is a good checklist of due diligence tasks for internal use when buying the assets of a web business?

There are numerous things you need to know and it is vital that you have an experienced attorney work through this process with you. We can help you find a knowledgeable and affordable attorney to assist you with this process at https://www.lawtrades.com. 

You can never be too thorough, and although each business is different some common areas to review would include:

  • The Company’s Articles of Incorporation
  • Bylaws
  • Organizational Chart
  • Shareholders and shares held
  • A Certificate of Good Standing from the Secretary of State along with active status and annual reports for a minimum of three years
  • Audited financial statements
  • The company’s credit report
  • Schedule of inventory
  • Schedule of accounts receivable and accounts payable
  • An analysis of gross margins as well as fixed and variable expenses
  • Internal control procedures
  • Business locations
  • Patent applications
  • Trademark and trade names
  • A list of employees including positions, salaries, and bonuses
  • Resumes of top employees
  • The company’s handbook
  • Descriptions of retirement plans
  • Collective bargaining agreements
  • Worker’s Compensation claims
  • Licenses and permits
  • Hazardous substances used in the operations of the company and any disposal methods
  • Federal, state, and local tax returns for the last three years
  • State sales tax returns for the last three years
  • Tax liens
  • Loan agreements of bank financing agreements
  • Promissory notes
  • Lines of credit
  • Insurance coverage

Again, these are only a few of the areas that need to be covered so I’m sure you can see the complexity involved and why a lawyer is important. If you’ve made it this far in the process, I’m sure you have already determined the traits of the company that are desirable and those that are not so desirable. The due diligence process will bring both of these areas to light. Remember this is your way of determining how good of a fit they will be and it’s imperative to dig deep and investigate anything that does not seem right or out of place.

Some red flags to keep an eye out for include poor internal controls, false information on their financial statements (P&L, Balance Sheet), severe liabilities, etc. Basically anything that seems like it questions the solvency of the company should be something that you should focus more attention on. Make sure you focus on their financials as questionable methods or uncertain line items can instantly destroy a deal. Therefore, you want anything that could possibly impact the deal in such as a way to be resolved immediately or the deal may need to be called off or delayed.

The United States Small Business Administration has a wealth of options and tools available when it comes to due diligence. I highly recommend you visit and explore their site at http://www.sba.gov/content/buyin….

Hope this kind of sets you off on the right path in terms of preparation. If you’d like experienced legal assistance with this don’t hesitate to check out LawTrades or just shoot me a message and I’ll assist in any way I can 🙂

Good luck!

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