This was a Michigan Small Business Development Center presentation to the business owners and advisers.

1. Buying a Business: The Purchase Process
and Due Diligence
P. Haans Mulder, JD, MST, CFP®
Cunningham Dalman, P.C.
phmulder@holland-law.com
616.392.1821

3. • Attorney and Partner at Cunningham Dalman, P.C.
• Have a Masters in Tax, am a Certified Financial Planner,
have almost completed a MBA in finance, and specialize in
business transactions as well as estate planning.
• Cunningham Dalman, P.C. is located in Holland and has
been serving West Michigan area since 1900.
• Have 16 attorneys specializing in all areas of the law.
Background

4. Stages in the Process
• Pre-Letter of Intent
• Post-Letter of Intent and Purchase Agreement
• Closing

7. Pre-Letter of Intent

13. Commitment from Financing Source

14. Post-Letter of Intent

15. Closing

16. Due Diligence and Process

19. Pre-Letter of Intent Due Diligence

20. Post-Letter of Intent Due Diligence

27. Personal Property Due Diligence
• Lien searches
• Obtain appraisals
• Review equipment leases

28. Real Estate Due Diligence
• Lease v. purchase
• Title search, zoning, survey, inspections and environmental
assessment
• Obtain appraisal

31. Employee Due Diligence
• Key employees
• Employee handbook
• Review I-9s

33. Closing
• Pay purchase price, sign purchase agreement and closing
documents
• Transfer titles
• Discharge liabilities

34. Questions…

35. BUYING A BUSINESS: THE PURCHASE PROCESS AND DUE DILIGENCE
Purchase Process
1. Pre-letter of intent
a. Non-disclosure agreement (NDA)
b. Review the letter of intent (LOI)
i. What terms are binding (i.e. confidentiality, non-solicitation, and
exclusivity)?
ii. Is it an asset or entity interest purchase?
iii. What is payment structure?
iv. Are liabilities being assumed?
v. Is there a non-compete?
2. Post-letter of intent
a. Conduct due diligence
b. Negotiate the purchase (i.e. definitive) agreement
3. Closing
Due Diligence
1. What is due diligence?
a. Definition
b. Why is it important?
c. Who are you doing due diligence on?
d. Asset v. entity interest purchase
P. Haans Mulder, JD, MST, CFP®
321 Settlers Road
Holland, MI 49423
616.392.1821
phmulder@holland-law.com

36. 2
e. Result may be to: do further due diligence, include on disclosure schedule,
pursue a lower purchase price, or abandon the deal
2. Create a system for managing the process
3. Determine who is on your due diligence team
4. Bank or financing source will dictate this process as well
5. How are reps and warranties as well as indemnification related to due diligence?
Generally includes requesting or getting information, evaluating it, and
determining what to do with it
Due Diligence Process
1. Pre-letter of intent
a. Valuation and review financial statements
b. Working capital requirements (cash held back at closing)
2. Post-letter of intent
a. Review further financial issues (tax returns, audits, pricing policies,
projections, etc.)
b. Understand the optimum allocation of the sales price
c. Agree on accounting principles for financial statements
d. Review tax liabilities
e. Review material contracts
f. Determine what licenses need to be obtained or transferred
g. Evaluate customers and suppliers
h. Review contracts and commitments
i. Assess pending or threatened litigation
j. Determine who has authority to approve transaction

37. 3
k. Assets purchased
i. Personal property
1. Do lien search
2. Obtain appraisals
3. Review equipment leases
ii. Real estate
1. Lease versus purchase
2. Obtain appraisal
3. Do title search
4. Have survey done
5. Do inspection
6. Have environmental assessment done
7. Review zoning
iii. Intellectual
1. Determine what intellectual property the business has (trademarks,
patents, copyrights, or trade secrets)
2. Do not forget about websites
3. Assess what rights you need
4. Determine if there are any registrations and claims
l. Employees
1. At will-status
2. Employee handbook
3. I-9s
4. Key employee agreements
5. Non-compete agreements

38. 4
6. Non-solicitation agreements
7. Consultants/independent contractors
8. 401k and employee benefit plans
3. Purchase agreement and closing
a. Sign purchase agreement and closing documents
b. Inventory valuation
c. Working capital
d. Transfer titles
e. Assign intellectual property
f. Title policy issued
g. Discharges/releases for liabilities