Perform Due Diligence before Starting a Business

When you’re looking into buying a business, the process of examining the business and conducting research is called performing due diligence. Due diligence is critical for any business, whether you will be starting from scratch or taking over an established business.

The following steps should always be included in due diligence, but the list is not exhaustive – some businesses may require additional steps.


Evaluate Finances

If you will be taking over an established business or starting with a franchise, evaluating finances may be as simple as reviewing historical data regarding revenues, liabilities, and profit or loss. If you are starting a business from scratch, it may be a little trickier to obtain financial data. You will have to review comparable businesses in the area and extrapolate a little based on expectations.

Since you will be purchasing the business and any needed assets, you will start at a loss and have to generate revenues to break even, even if the business was considered profitable before you took over. As part of your financial evaluation, estimate how long it will take to break even and begin making a profit to determine whether the business will be financially feasible based on the amount of capital you are starting with.

Carefully Review Legal Considerations

Every business has legal factors to consider. You may have to sign a lease and contract, fulfill government requirements regarding health and safety, make sure you understand applicable copyrights, trademarks, patents, or trade secret protections, and take many other actions to make sure that you’re in compliance before taking over. Missing a legal consideration could be devastating, so consult experts as needed for this part of due diligence.

Understand Tangible Business Needs

Pretty much every business needs at least some tangible assets. Even businesses that operate strictly online will require the business owner and any employees to acquire computers and online access of some sort. Figure out what kind of overhead will be needed and where any assets or inventory will be stored.

Decide Whether Employees Will Be Needed

Hiring employees adds a dimension of complexity to a business. Not every business needs employees, so it may be worth it to consider simply running the business solo or with a partner. There may also be the option to hire private contractors to perform some business needs, depending on the structure of the business.

Conduct Research into Customer Base

Understanding the target customers or clients can help you understand how to optimize marketing efforts, maximize revenues, and improve satisfaction with your brand or business. Creating a persona that details the characteristics of your average customer can help you to better understand their pain points and position your business to address those points in a way that makes you more valuable to your customer.

Consider Daily Operations

When it’s all said and done and the business is in your name, there will be tasks that need to be performed every day. Figure out whether you really want to perform those tasks and gauge your level of expertise in the industry of your choosing. Use this final step to assess whether the business truly fits with your goals, lifestyle, and values before taking the plunge and starting a new business.

To find out about starting your own business and get the information you need to perform due diligence, call 844-463-3245 today.

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