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Reading: 1.5 minutesYou have selected an existing business for purchase and are content with the price. Before proceeding to sign the final purhase agreement, it is useful to request additional documents for conducting a business due diligence. In fact, we strongly advise you to do so. These documents will provide a comprehensive overview of the business's sustainability, highlighting both its strengths and potential risks. This information is vital for making an informed decision regarding the purchase of the business.<figure id="figure-v5olbqtg4jljn75zfk"><img id="v5olbqtg4jljn75zfk" src="https://images.unsplash.com/photo-1583521214690-73421a1829a9?crop=entropy&cs=tinysrgb&fit=max&fm=jpg&ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw0Mnx8Zm9sZGVycyUyMG9mJTIwZG9jdW1lbnRzJTIwfGVufDB8fHx8MTY4ODQwOTEwNnww&ixlib=rb-4.0.3&q=80&w=1080" alt="" class="object-cover bg-gray-100 " style="aspect-ratio: 16/9; object-position: center center;" data-corners="no-rounded" data-aspect="16:9" data-caption="" data-positionX="undefined" data-positionY="undefined"/></figure>Now, let's tackle things step by step:<ul><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;">Financial statements. You've already requested them for your business valuation.&nbsp; They include the company's balance sheet, income statement, and cash flow statement. They also provide insight into the various financial indicators on the profitability of the business.&nbsp;</li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;">Contracts: these include any contracts the company has with customers, suppliers, employees, and other parties. These contracts will give you an understanding of the terms of each agreement and help you identify any potential legal risks.</li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;">Legal documents: these include any lawsuits the company is or has been involved in, any compliance issues and any other legal issues the company may face. These documents will help you determine any potential legal risks you may assume if you purchase the business.</li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;">Asset Inventory: This document will list all the assets of the business, including inventory, equipment, real estate, and other assets. This information will also either confirm the value of the business or may significantly reduce it.</li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;">Employee records: These records contain information about the company's employees, such as dates of employment, job titles, qualifications, and job descriptions. This information will help you assess the number of employees at the company and identify possible problems with employees.</li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;">Customer Records: These records include information about the business' customers, their categories and what products/services of the business they buy, how regularly, etc. This information will help you assess the customer base of the business and identify any potential problems with customers.</li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;">Reputation and Brand Risks: Researching a company's reputation and brand is critical. Due diligence can identify customer complaints or other issues that may affect the company's image and future success.</li></ul>In addition to these specific documents, you can also request marketing materials, documents assessing environmental risks and environmental compliance, customer surveys or employee feedback.

Why is Due Diligence necessary before purchasing a business?

Reading time: 2.5 minutes.Starting a business is an important decision in and of itself. The accompanying question of whether to buy an existing business or start one from scratch can be just as important, complicated, and demanding.&nbsp;Both options have their pros and cons. If you haven't purchased an existing business before, but are starting one from scratch, this article may be interesting food for thought.&nbsp;So, where to start? Lets start with pros and cons of each option:<blockquote><h3>Buying an existing business</h3><figure id="figure-6831n7sv0cdljn6ur2n"><img id="6831n7sv0cdljn6ur2n" src="https://images.unsplash.com/photo-1575663620136-5ebbfcc2c597?crop=entropy&cs=tinysrgb&fit=max&fm=jpg&ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw1fHxzbWFsbCUyMGJ1c2luZXNzfGVufDB8fHx8MTY4ODM3Njk2OHww&ixlib=rb-4.0.3&q=80&w=1080" alt="" class="object-cover bg-gray-100 " style="aspect-ratio: 16/9; object-position: center center;" data-corners="no-rounded" data-aspect="16:9" data-caption="" data-positionX="undefined" data-positionY="undefined"/></figure></blockquote><h3>Pros</h3>Save time and money: Buying an existing business can save you time and money. You won't have to start from scratch, and you'll inherit business assets, employees, and most importantly, yes, of course, customers.At the same time, you'll get a proven business model: when you buy an existing business, you're buying a business that's already been successful. This means you can start generating income right away.Reduce the risk of failure: Buying an existing business can reduce the risk of failure. The business has already gone through the start-up phase and has a track record of success.<h3>Cons</h3>High Cost: Buying an existing business can be expensive. You'll have to pay for the assets, contracts already signed, and the business' reputation.Hidden Problems: The business may have hidden problems which you won't discover until after you buy it. Fixing these problems can cost you money and time. It also helps to avoid this by conducting a so-called due diligence in advance. For such a check it is better to spend the necessary amount to reduce the risks of your transaction.&nbsp;Lack of full control: When you buy an existing business, you are not starting from scratch. You are inheriting the culture of the business, its employees and customers. Redesigning and remodeling everything all at once may not be the best solution, so changes will have to be implemented gradually.<blockquote><h3>Establish a Startup</h3></blockquote><figure id="figure-iom0b5zrvglj8t5hqw"><img id="iom0b5zrvglj8t5hqw" src="https://images.unsplash.com/photo-1582005450386-52b25f82d9bb?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw5fHxzdGFydHVwfGVufDB8fHx8MTY4NzUzODE0Mnww&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" alt="" class="object-cover bg-gray-100 " style="aspect-ratio: 16/9; object-position: undefined undefined;" data-corners="no-rounded" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-mce-src="https://images.unsplash.com/photo-1582005450386-52b25f82d9bb?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw5fHxzdGFydHVwfGVufDB8fHx8MTY4NzUzODE0Mnww&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" data-mce-style="aspect-ratio: 16/9; object-position: undefined undefined;"></figure><h3>Pros</h3>More control: When you start a startup, you have more control over the business. You can determine your company's culture, management style, and team work style, you hire each employee yourself, selecting the ones that best fit your needs.More opportunities for growth: Startups have more opportunities for growth than established businesses. This is because startups are not limited by the past. They can innovate and create new products and services. Immigrants are also able to create successful startups because they bring new elements from their cultures and countries that may be unusual solutions for a new market.<h3>Cons</h3>Greater risk: Creating a startup is more risky than buying an existing business. Unfortunately, no one can guarantee that your startup will be successful.&nbsp;More time and money: Creating a successful startup requires more time and money than buying an existing business. You'll have to invest in marketing, research and development, and you'll have to find, hire, and train employees.<blockquote><h3>Which option is right for you?</h3><figure id="figure-252g13tnsaljn6tfmf"><img id="252g13tnsaljn6tfmf" src="https://images.unsplash.com/photo-1583119184129-8cf5b7cf1d06?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwxfHx0d28lMjByb2Fkc3xlbnwwfHx8fDE2ODg0MDg0OTZ8MA&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" alt="" class="object-cover bg-gray-100 " style="aspect-ratio: 16/9; object-position: center center;" data-corners="no-rounded" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-mce-src="https://images.unsplash.com/photo-1583119184129-8cf5b7cf1d06?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwxfHx0d28lMjByb2Fkc3xlbnwwfHx8fDE2ODg0MDg0OTZ8MA&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure></blockquote>The best option for you depends on your individual circumstances and goals. If you want to save time, buying an existing business may be the right option for you. If you want more control over the business and are willing to put in the time and effort, creating your own business may be an option for you.Regardless of which option you choose, it is important to do a market analysis and make sure you are not making the wrong choice.<h3>Here are some additional questions to consider when making your decision: </h3>What are your personal strengths, experiences, and interests? Think about how they fit in with the challenges of starting a business from scratch or managing an existing business.What level of risk are you comfortable with? The risks of startups are undoubtedly higher, but as a rule of thumb, the higher the risk, the greater the payoff.&nbsp;How important are creative control and self-actualization to you? Determine whether you prefer the freedom of starting your own venture or the stability and predictability offered by an existing business.What financial resources and financing options are available to you? Assess your financial options and explore financing options to support your entrepreneurial journey, whether you are starting from scratch or buying an existing business.By answering these questions, you can narrow down your options and make a more informed decision about whether to buy an existing business or start a startup. Either decision can prove to be the right one, while also being an exciting, and certainly exciting, process that will undoubtedly enrich your perception of life.

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Why is Due Diligence necessary before purchasing a business?

Buy a business or establish a startup from scratch?