Due diligence refers to the gathering of information before buying a business. It is a vital step when you want to buy shelf corporations. You have to work closely with an accountant and a lawyer when doing the due diligence procedure.

You will also have to sign a nondisclosure agreement agreeing not to disclose any confidential information about the company. There are many documents you will need to collect and analyze. Here are the materials you need to have when doing the due diligence process.

You have to make sure that the business is operating legally. It should have a business permit. The license is an indication that the current owner is not running afoul of the licensing laws.

If you are buying a partnership or sole proprietorship, it may not have the official paperwork. However, for a business that has been registered as a corporation or LLC, it will have the organizational documents. For the limited liability corporation, you should have the articles of organization; and the articles of incorporation for the corporation. You should also get a certificate of good standing from the secretary of state. The document certifies that the country has approved the business.

You have to make sure that the business you are about to buy does not violate any restrictions. There are some localities with strict limits on the location of the company. However, some areas allow the use of both residential, commercial zoning. The limits go for businesses like nightclubs and bars.

The business you want to buy must also abide by the environmental regulations. Find out if it has been involved in an activity violating the laws.

The seller will give you a letter of intent once you have agreed on the price. The letter of intent includes a list of business assets, liabilities, and the terms and conditions of the sale. Once you have this document, you can be more comfortable to continue with the due diligence.

The landlord has to agree with transferring the legal documents to your name. If not, you have to negotiate for a new lease, which will be costly. It is also advisable to review the outstanding agreements between the owner and the customer or vendors.

Before you buy a business, you must check the past year's financials. Some of the documents you should look for are balance sheets, tax returns, cash flow statements, accounts payable, debt disclosures, and advertising costs. The business financials will help you analyze the company's income stream. The business must have a clear path to profitability. You should also find out if the debts and liabilities were included in the transaction.

The value of inventory will affect the cost of the business. Therefore, you have to analyze them properly. Check for the following inventory status: