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How does due diligence look in a commercial purchase?

On Behalf of | Jul 27, 2020 | Commercial Real Estate, Real Estate Law

In a merger or acquisition, buyers have a responsibility to perform thorough and keen due diligence before moving forward. A commercial purchase will always come with a financial risk. But the risk increases exponentially if you, as a buyer or representative, do not fully investigate the business or commercial asset that you have your eye on.

What to consider in performing due diligence

In the context of a commercial real estate purchase, there are an array of elements you should consider prior to finalizing a deal. Some of those elements include:

  • Finances: You likely have an idea of how things are run, or how well the seller’s asset is doing. But, in being thorough and performing due diligence, it is vital that you prioritize a review of the seller’s financial matters. Does the business entity have a well-documented financial history? With your attorney, seek to examine any audit information, quarterly statements, financial projections and other relevant documents that you can.
  • Technology: The current state of technological and intellectual property (IP) affairs is also important. How much will you or your company need to spend in the future for upgrades or updates? Has there been IP disputes in the past? What about software licensing?
  • Sales: Get to know the entity’s customer base and the relationship that they have. Maybe start by learning the culture of the salespersons and the policies the entity implements to maintain growth and good client-company associations.
  • Contracts: Another vital step is reviewing business contracts. Among other legal factors, you will want to know what kind of commitments the business has to other parties.

Between employee and management culture to litigation history and taxes, the list could go on. Taking steps to ensure you know as much as possible about the property want to purchase could save you and your partners from significant losses and headaches in the future.