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Business acquisition: Due diligence is a must

Acquiring a business, regardless of the terms and conditions of the deal, is a big decision that will impact your current organization in a number of ways. With so many potential issues lurking, due diligence is an absolute must.

You may want to rush ahead with the acquisition and figure everything else out later, but going down this path could cost you a lot of time and money, while also adding more stress to your plate.

Here are five tips that will keep you on track from beginning to end:

  • Focus on cash flow: There are many details that deserve your attention, but this one should be at the top of your list. Learn more about cash earnings from operations prior to Interest, Taxes, Depreciation and Amortization (EBITDA).
  • Learn more about accounting policies: No two companies take the exact same approach to accounting. Remember, what you see on paper is not always reality.
  • Add up assets: Any assets you'll receive as a result of the acquisition should be taken into consideration when negotiating a deal. This can include things such as equipment and inventory.
  • Look into the tax standing of the business: The last thing you want to do is take over a company that's not in good standing regarding its taxes. For example, make sure all taxes have been paid to date. If there are any outstanding audits, dig through all the information to get a better idea of what's going on.
  • Consult with specialists: Even if you have a solid understanding of business and what you're trying to accomplish, a little bit of help can go a long way. There are many specialists who can step in to assist you, ranging from attorneys to tax professionals to IT consultants.

Moving forward with a business acquisition is a big decision. If done correctly, this can have a positive impact on your current company. Conversely, if you make any mistakes along the way, it could result in trouble that you are not willing to take on.

With the right approach to due diligence, you'll find yourself in better position to make an informed and confident decision. As long as you know exactly what you're getting with the acquisition, you'll never second guess yourself.

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