Buying a second business could be a boon for your current company. Still, you should be sure that your acquisition does not cause you a lot of trouble. Due diligence may reveal problems that could cause you to think twice about your purchase.
Since business acquisitions can greatly differ, research into a company depends on the characteristics of the target company. Still, Entrepreneur explains some information that any business owner should learn before going through with an acquisition.
Owners and capital sources
It is important to find out exactly who owns your target company to ensure you buy all the available ownership interest. You should also understand who is supplying capital to the business. Otherwise, you might miss shareholders who could emerge later and contest your ownership.
Past and future litigation
The litigation risk of your target company is also important since you may become responsible for the liabilities of the business. Any present threats of litigation may tell you if lawsuits are likely to happen. You could also look at whether the company has been the subject of litigation in the past.
Checking how well the company has complied with the law may also be of benefit. You could discover if your target company is likely to run afoul of state or federal authorities.
Ownership of intellectual property
Your target company probably has valuable IP that you want to profit from. However, you should know if the company actually owns it and is not just licensing it from another business, or if the business is engaging in any infringement.
A comprehensive look into another business may spare you unforeseen expenses and even legal action. The research may take time, but the effort can be well worth it.