If you are buying a commercial property of business for the first time, or even if you have engaged in many such transactions, it is important to engage in proper due diligence. Many people – including many people involved in commercial transactions, but especially newcomers to the field – do not fully understand the purpose of due diligence or what it should entail at its most effective. While most commercial buyers, whether of real estate or businesses, understand that due diligence is a process that helps them evaluate a property, many view the process as a means to ensure they are not paying too much. That is part of it, but there is much more to it, and to conduct proper due diligence requires a better understanding of the information you hope to discover during the process.
What is Due Diligence?
At its most basic, due diligence is just an information-gathering process by the buyer in an attempt to understand the risks involved in purchasing the property or business the buyer hopes to obtain. The seller might prepare what is known as a confidential information memorandum providing information on the business, but accepting a CIM at face value hardly qualifies as due diligence. While a CIM likely would include financial information, including past performance and projections for the business or property being sold, the document is unlikely to contain all the information a prudent buyer would want to have before moving forward with a purchase. As a buyer, you need to know about the tenants, vendors, employees, the business model, and the competition in the area for the property or business you are considering purchasing. A CIM also likely will try to leave out or downplay negative information. You need more than that to make an informed purchase decision.
Certain Information is Critical to Good Due Diligence
While there is no such thing as too much information in making a business decision, you need to ensure that the information you get includes the information you need. Good due diligence should include detailed information regarding:
- Financial matters, including historical financial statements and information to support the reasonableness of financial projections;
- Intellectual property;
- Customer and sales information
- Existing contracts;
- Information on employees and management;
- Current litigation;
- Tax issues;
- Any antitrust or other regulatory issues;
- Insurance policies;
- Competitive environment
The information you want will depend in part upon the kind of commercial enterprise you are buying. However, you should try to obtain every bit of information about the business you are buying that you possibly can.
If You are Contemplating a Commercial Purchase in the Toronto Area, Talk to Beganyi Professional Corporation
When you are contemplating a business transaction, whether it is in real estate or the acquisition of a business, you should be sure you have the right advisors to guide you through due diligence and the entire purchase process. Beganyi Professional Corporation has the experience and expertise to provide that advice, guidance, and assistance. If you are contemplating such a transaction in the greater Toronto area, including Mississauga, Brampton, Oakville, Hamilton, and Milton, talk to the professionals of Beganyi Professional Corporation.