Investigating before buying existing business

[Businik]

Hi All,
I'm new into this. I'm interested in buying existing business. I read a lot of articles about it and what I observed, that is the buyer's responsibility to investigate about what he/her going into, and make sure everything is right.
Now I found a business that I like to get into, because the owner is flexible and willing to work it out.

So how do I investigate about every little things like Lease Contract, Licensing, Deed Holder, Lean, Unpaid balance on Tax, Utility, Note, Loan, any Service, Public Record, open Law Suit, Filing Tax, IRS record, Income Tax, Revenue, Cash flow, etc.?

Is there any type of business or institution do all the investigation?
If so, how do I search for local one, I live in Michigan-Detroit area?

I appreciate any help or advice. Thanks

[Freelancier]

First thing might be hiring a forensic accountant to dig into the guy's books and see if there are holes in the things he's declaring for public consumption.

Some of the other issues are going to be things that you find in public databases, so you either need to do the searching there or find someone who knows how to search all those databases and hire them. It's something a lawyer would do, so maybe contact your lawyer and see who they use for stuff like that. If you don't have a lawyer, get one to handle the paperwork of the deal at the very least.

[Evan]

Don't just buy the entity he runs the business under. Ultimately, you need to know what his financial position is and his history of income/losses in order to determine what could be an appropriate sales price. You're going to want to start a new legal entity and buy any assets he has, including possibly some intangible things (customer lists, vendors, use of brand name, etc.) You don't want his liabilities.

[Business Attorney]

What you are describing is called "due diligence" and, yes, there are many ways you can get help. Usually you don't use one entity for all the due diligence but get assistance from different professionals in different areas.

Financial due diligence (are the operating results what they are claimed to be) is typically the role of an accountant. He or she reviews the financial statements and various financial ratios to make sure that they make sense and are supported by the books and records of the company.

Legal due diligence (such as verifying that the business is in compliance with laws, that there are no pending lawsiuts and there are no readily ascertainable liabilities or liens) is generally the role of the buyer's attorney.

Business due diligence is usually done by the buyer himself. Are the customers solid and transferable? Will the vendors sell to the buyer on the same terms? Is the equipment well maintained? Is the inventory salable in the ordinary course, or is it obsolete or in excessive quantities? Are there industry-wide issues that may affect the business such as overseas competition? Will the key employees stay on after the sale? And on and on.

Of course, some buyers are capable of doing their own financial and legal due diligence, though I have found that to be fairly rare. In many cases buyers also need help on specific business issues, perhaps to value the machinery and equipment or to conduct a Phase I environment study of the seller's facilities.