Conducting due diligence when buying a business for sale

Due diligence is one of the most important steps in purchasing a business for sale. This is a step where you thoroughly evaluate a company to ensure that it is a good investment.

Conducting due diligence is essential for buying a business for sale, whether you’re a seasoned entrepreneur or a first-time buyer.

Let us walk you through this due diligence process when buying a business for sale in Vietnam so you can make an informed decision. Without further ado, let’s dive in!

What is due diligence, and why do you need to do it?

The process of thoroughly investigating a company before making a purchase is known as due diligence. Because it helps you understand the financials, operations, and compliance with the company’s legal requirements, it is an important step in purchasing a business for sale in Vietnam.

By conducting due diligence, you can determine whether the company is a good fit for you and identify any potential liabilities or risks that may arise after the purchase. While this procedure may take some time, it is well worth ensuring that you invest wisely in a profitable company.

Preparation

When purchasing a business for sale in Vietnam, it is vital to prepare by gathering all necessary information and resources before conducting due diligence. You should research the market and industry, determine your goals and objectives, and resolve if there are any potential liabilities or risks.

Additionally, seeking the counsel of a financial advisor or business lawyer, who can offer valuable insights, may be helpful. With good preparation, you will be able to conduct thorough and efficient due diligence.

Due diligence checklist

Financial due diligence

It is crucial to thoroughly examine the company’s financial records as part of the due diligence for buying a business in Vietnam.

Financial due diligence in Vietnam includes reviewing documents such as year-to-date statements, tax returns, bank statements, budgets, revenue by customer, inventory aging, a comprehensive list of all assets, etc.

Confirmation of data is an important part of financial due diligence. You should check if the figures match the owner’s information and if the financial statements match the tax returns. In addition, it is crucial to determine whether the narrative makes sense. For instance, if the business claims it is busy and has a notable order book, do the year-to-date results reflect this? A quality of earnings report, which is a comprehensive analysis of the finances to assess the accuracy and quality of the historical results and the sustainability of future earnings, can be prepared by an accountant for a more in-depth look at the finances.

Commercial due diligence

A comprehensive evaluation of a company’s commercial activities and prospects is known as commercial due diligence, typically carried out prior to either investing in the company or acquiring it. Commercial due diligence determines whether the target business’s operations, market position, or competitive environment show any risks or opportunities.

The first step in conducting commercial due diligence in Vietnam is to investigate the market size, growth rate, and trends of the industry in which the business operates.

The next step is to compare the competitors’ market share, pricing, and product offerings to the target business for sale.

Additionally, it would help if you also investigated the business’s distribution channels, customer relationships, and product or service offerings. This information will give you a better knowledge of the strengths and weaknesses of the business as well as any potential risks or opportunities.

Commercial due diligence is very important because it provides a thorough understanding of the company’s market position.

Legal due diligence

Legal due diligence in Vietnam is evaluating the legal aspects of a business for sale in Vietnam to ensure that the buyer is fully informed of the company’s legal liabilities and obligations before making a purchase. This process of due diligence is necessary for ensuring that you – as the buyer – are fully aware of any legal risks associated with the business and avoiding future legal disputes.

To conduct legal due diligence when buying a business for sale in Vietnam, you will need to review the company’s legal records and documents, including contracts, licenses, permits, intellectual property rights, and any other legal agreements the company is bound by. You might also need to look into the company’s past to see if there have been any penalties or lawsuits.

If you want assistance with legal due diligence in Vietnam, you should hire a Vietnam-based attorney with expertise in corporate law and business transactions. In addition to assisting you in negotiating the terms of the sale agreement to ensure that your interests are protected, your lawyer will be able to review the legal records and provide you with advice regarding the potential risks and liabilities associated with the business.

Lastly, look at the company’s assets and liabilities through the local commercial registry to ensure there are no pending claims or debts against it.

Operation due diligence

Operation due diligence is reviewing and evaluating the operational aspects before buying a business for sale in Vietnam. This step aims to identify any potential operational risks or issues that could affect the company’s success and overall health of the business’s operations.

When buying a business for sale in Vietnam, you should do operation due diligence by:

• Examine the operational procedures and systems of the company, as well as the quality of its customer service, supply chain management, etc.
• Assess the business’s employees, including the management team, for their abilities, experience, and motivation. Further, you should evaluate the crew’s quality, size, productivity, and turnover rate.
• Evaluate the company’s facilities and equipment necessary to run the business, as well as their quality and condition.
• Examine the terms and conditions of the company’s leases, contracts, and other legal agreements, including those with suppliers and customers, to confirm how they affect the company’s operations.
• Examine the extent to which the business complies with labor, health and safety, and environmental regulations.
• A substantial customer base can guarantee the company’s long-term success and provide a steady revenue stream. Therefore, you must review and verify all customer information before making a purchase.