Doing Your Due Diligence When Purchasing A Business

kelowna businessKelowna accountant, Ken Davidson, reviews his process for due diligence when purchasing a business.

In Kelowna, so many people travel from all across the country to live here because it’s such a desirable location to settle down. In turn, we attract many entrepreneurs and prospective entrepreneurs that are constantly thinking about what type of business they can purchase in the beautiful Okanagan Valley.

I had a question come into me from a reader last week asking about what I recommend in the due diligence process when purchasing a business. I wanted to address this in my blog since it is such a common topic I encounter as a Kelowna accountant. It seems that so many people in Kelowna are from somewhere else in the country (or world) and have a desire to own a Kelowna business!

If you are considering moving to the Okanagan to purchase or invest in a business or if you are Kelowna born and raised and would like to purchase a business, it’s imperative that you are thorough in your due diligence process when assessing the valuation of it and deciding if it is the right fit for you.

Related: I Want To Sell My Business…What’s It Worth?

My due diligence on a person’s business depends on the business, in general. However, one of the things I would want to know is the value of the core assets. Establishing the value of the assets is really fundamental to determining valuation. In these circumstances it is crucial to use a business valuator or a property valuator, to give some insight.

After determining asset values, I would need to assess the financial strength of the company. When I say financial strength, I mean looking at things like revenue, cash flow and expenses that are running through the business to see whether or not it is an ongoing stream of revenue or a short-term bump in growth.

Related: Getting Your Kelowna Business Ready To Sell

When looking at the expenses, it’s necessary to determine if they are reasonable for the type of business and make sure that they are all inclusive. When it comes time to make your decision on the value that you will acquire the business at, you need to feel comfortable that the numbers are accurate because you can make a mistake by relying on numbers that you’re given. You need to do your due diligence and dig deeper, much deeper!  Ask questions such as why is the business for sale to gain insight into whether the price is fair.  Also ask yourself what value you can add to the business, as this may make it a more desirable purchase to you based on what you can add to the business.

There are some great realtors and business specialists in town that specialize in selling businesses so if you are looking to buy a Kelowna business, I more than happy to help recommend the right people to you.

Do you have an experience buying or selling a business? What advice would you pass on to someone who is looking at buying a Kelowna business?


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