In case you are not familiar with the phrase, due diligence simply means investigating or auditing a potential investment. This is important when you are looking to invest in a business, especially one that is in a foreign country.
When taking the chance and investing in a company you want to make sure there are not any hidden problems. Here are just a few things that you will want to take a look at before making your final decision.
- Finances: The first thing that you will want to take a look at is how the business handles their finances, and what their current financial standing is. Inspect the current balance sheet, profit and loss statements (the past 5 years should be sufficient), tax returns, audited financial statements, liens, among others.
- Physical Assets: There may be physical goods involved in the investment. If there is equipment or inventory, then make sure it is up to date. Make sure any equipment is in good order.
- Lease: Many businesses will be located in leased space. You will need to review this before investing in a company. How long until the lease needs to be renewed? What are the terms like? You may need the landlord’s permission to switch over management. Also, you will want to make sure that rent payments are up to date as well.
- Legal Status: If the business you are interested in investing in is owned either by a corporation or LLC, then there are two different routes you can take. You may either be buying assets, or you may be buying the company itself. If your plan is to buy the company, then you will need to see documents that created the entity along with any other related documents such as bylaws. Make sure that the owner has the legal authority to sell it. Also check out any pending law suits.
With SMG Consulting Services, we make this easy on you and do all the research and investigating for you. Investing in a new company, particularly one in a different country can be risky. Let us help you make this big decision.