Hidden Environmental Risks of Buying a Business.
Congratulations—you've found a business you want to acquire. And why not? The market is hot right now for entrepreneurs looking to buy small to mid-size companies and owners who wish to sell.
You've done your research and due diligence (financial, legal, business practices, etc.) and no red flags. However, before you close the deal...have you looked at the business's recent environmental compliance footprint?
Environmental risks go beyond just the target property and its history; you must also examine the actual business and its current actions.
Why examine recent compliance footprints?
Most business sectors are affected by several major environmental statutes and regulations, and most (particularly those in the manufacturing/industrial fields) will have a record on environmental, health, and safety regulations.
Examples include:
air emissions permitting
waste management and disposal
wastewater and stormwater generation
chemical use and reporting
Acquiring a business that is noncompliant in any of these areas can cost you significant time and money. Environmental liability exposures can subject business owners to numerous hurdles, such as claims from environmental regulators and third parties, increased development costs, or land use restrictions.
In our experience, environmental compliance has historically been neglected by small to mid-sized companies—especially those who've been overlooked by regulators tending to focus on "bigger fish." Business owners weren't alerted, advised, or aware of regulations, and therefore remained noncompliant (sometimes for decades).
However, once the business changes hands or becomes part of a more prominent company, it becomes more vulnerable to adhering to environmental regulations. So you'll want to work with an environmental compliance expert to develop a proactive strategy to overcome any current or future issues.
So what's the solution?
A compliance review. We recommend integrating an environmental compliance review in the due diligence process. This way, potential issues are identified from the onset. Your environmental consultant can help develop plans to correct them once you become the owner.
Integrate an environmental compliance review in the due diligence process.
Here are three vital areas your environmental consultant should consider:
OPERATIONS
Investigate how the business currently/most recently manages environmental matters. Who are the key players, and what are their roles? Who is responsible for ensuring that inspections are performed or records are kept?
EQUIPMENT
Examine equipment in use for the business. Environmental regulations often require permits for equipment designed to prevent contaminant exposure, and it will be determined if the company complies. Examples include wastewater treatment equipment, generators, paint booths, equipment that uses solvents, oxidizers or flares to manage air emissions, and storage tanks.
RECORDS
Review existing documents to ensure compliance and identify missing records. Examples include permits or plans, inspection logs, sampling results, records of chemical purchases, or waste documentation.
Resourceful, not Remorseful
You can access several expert resources to avoid buyer's remorse of a business. Understanding that environmental risks aren't just associated with real estate transactions, but also business transactions can help shed light on the importance of working with an environmental consultant from the start. However, ensure you choose an expert who integrates a business's recent environmental compliance footprint into the due diligence process. Then, you'll have a plan of action for any environmental discoveries made and peace of mind you're acquiring the right business for you.
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