Buying a business is a big deal, in every sense of the term. It is probably one of the largest investments you will make, and it will take a lot of time to complete. It is important, then, to know exactly what you are getting out of the transaction –and the most effective way for you to learn those details is through what is known as due diligence.
What is due diligence?
Due diligence is a catch-all term, referring to the steps that a buyer should take to ascertain exactly what the implications of purchase are. In relation to buying a pharmacy business, due diligence refers to finding out all the details pertaining to that business –the contracts (employment, supplier, customer, property, etc), debts, assets, operations, and anything else that will impact the value of the company.
Finances
Contracts
It is not just about finding out about outstanding debts, though. Due diligence should also inform you about anycontract stipulations that will affect the value of the company –for example, the pharmacy might have a great deal worked out with a supplier, which has a marked effect on the profit on those products but the deal would not be transferred to the new owner. In this case, you would need to reassess the financial reports with the prices that you would actually be paying, rather than the legacy preferential deal that the current owner is able to take advantage of.
Legalities
You should also check the legal situation of the company you are buying –are they currently the subject of litigation activity? Are they legally permitted to provide the services that they engage in, and are any regulations being followed? If the answers to those questions are not satisfactory, then you need to reflect that fact in the price that you ultimately agree on.
Caveat Emptor
The purpose of due diligence can be summed up as ‘buyer beware’ –it is ultimately your responsibility to understand exactly what you are purchasing, and there is no legal recourse available to you if you find out after the fact something that would have affected the price (unless you have been purposely misled). One of the best ways to ensure that your due diligence is as thorough as can be is by using an external consultant who has experience in dealing with these types of transactions.
