Do not overlook employees when purchasing a business

Searching for the right business to buy can be a time-consuming process, and when you think you have finally found the right opportunity, it can be easy to overlook important details. However, it is valuable to take your time conducting a thorough due diligence before finalizing your purchase.

Due diligence is the process of carefully evaluating a business before deciding to purchase it. The due diligence process usually occurs after you sign intent-to-purchase documents but before you sign the final purchase agreement.

Considerations during the due diligence process

During this process you should examine business records, sales agreements, purchase agreements, financial statements and other important documents. Also, examine the company’s assets, equipment and facilities. There are many components of the business to examine during the due diligence process. However, according to a recent Forbes article, existing employees are one of the most important components to consider when evaluating a business.

What to learn about existing employees

If you are considering buying an existing business, it is valuable to understand who your employees are, what they contribute to the business and what the damage could be to the business if they leave it. Ultimately, you should gain an understanding of which employees are essential to the business and which employees could be replaced if necessary.

When considering existing employees during the due diligence process, try to answer the following questions:

  • Which employees are essential to the business?
  • Do any employees hold licenses that are important to the business?
  • How easily could essential employees be replaced, if they choose to leave?
  • What trouble could employees cause for the business if they chose to switch to a competitor?

Oftentimes sellers are reluctant to let you meet the employees before purchasing a business. However, if you are purchasing a business that requires highly skilled or licensed staff who will be difficult to replace, it can extremely important for you to meet them before closing, so you can try to assess their level of commitment to the business.

It is in your best interest to be aware of any potential problems before purchasing a business. When conducting your due diligence, be sure not to overlook the importance of existing employees and the potential problems the business could experience if certain employees decide against seeing the business through an ownership transition.

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