Briefly Explain the Steps in Performing Due Diligence in Purchasing

question 10

Essay

Briefly explain the steps in performing due diligence in purchasing an existing business.

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Definitions:

Compensating Balances

Minimum cash balances that a business agrees to maintain in its account as part of a loan agreement, often used to reduce the lender's risk.

Pledging Agreement

An agreement where a borrower pledges an asset as collateral to secure a loan, ensuring the lender can seize the asset if the loan defaults.

Warehousing

In finance, a method of securing the lender’s interest when borrowing is secured by inventories. The inventory is placed in a warehouse operated by a third party. When it is drawn out of the warehouse by the borrower, a pro rata share of payment on the loan is due.

Legal Control

The power or authority to direct the management and policies of a company or organization, typically through ownership of voting shares or by contract.