If you want to sell or buy a business of your own you'll certainly need to know just what due diligence means and how it's applied.

In its simplest form due diligence is a comprehensive process that investigates a business to assure the intending purchaser that all facts and financial figures are as stated by the vendor and that there are no unpleasant and unwanted surprises that have been concealed.

Due diligence is a part of every business sale or purchase, regardless of the size of the enterprise.

The more complex the business is, the longer the due diligence is likely to take, but today's purchasers shouldn't sign a purchase contract for a business until due diligence has been completed.

Is this a good business?
Due diligence is conducted to answer a number of questions, including whether the timing is appropriate for the purchaser to buy and why the vendor is selling the business.

Some businesses have peaked and are starting to slide which might make them affordable but also means they aren't capable of improvement and represent bad investments for purchasers.

How are its finances?
Every business for sale comes with claims of turnover, expenses and profitability, but how can the purchaser know that these are accurate representations?

Due diligence inspects the books of the business including tax records for up to the previous three years to validate or challenge claims by the vendor.

Who are its customers?
Due diligence will examine all existing contracts and sales agreements, and if necessary introduce new agreements to carry customers over to the new owner.
It will also verify claimed purchase levels of key customers and evaluate their growth potential if required.