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Why you need to do due diligence

On Behalf of | Mar 9, 2023 | Business Law

It’s important to do due diligence before buying a Washington business. Taking time to analyze the possible pros and cons of acquiring a company may help you avoid buying a firm that is subject to multiple lawsuits, has significant debt or won’t add value to your organization.

How to perform due diligence

During the due diligence process, you will want to review a target’s financial records to ensure that nothing is amiss. If you can’t get access to these records, it should be a red flag to not go through with the purchase or merger. The same may be true if a company’s books are disorganized or don’t follow accepted accounting standards. It may also be a good idea to talk to employees, customers and others associated with the acquisition target to better understand how it may mesh with your organization.

You acquire the company’s liabilities

The reason why you perform due diligence is that you acquire a company’s liabilities as well as its assets after a transaction is complete. Therefore, if your target is in the middle of a lawsuit, you would take over as the defendant in that suit assuming that the matter isn’t resolved before an acquisition taking place. You are also responsible for any debts, promises to pay for facilities upgrades or anything else the company was liable for before it became part of your firm.

While you may perform due diligence independently, it may be easier if you have a team to help you. Having accountants or others with experience analyzing potential acquisitions on your side may make it easier to make a decision that benefits your company now and in the future.