What To Expect During The Due Diligence Process
Would you purchase a company without first learning everything you can about it? Of course not. Neither will a buyer. This learning process is called “due diligence.”
During the due diligence process, a buyer and the buyer’s advisers will examine all aspects of your business, including your contracts, procedures, systems, plans, agreements, leases, manuals and financial records. This process will be extensive and time consuming, both for you and the buyers. Therefore, it is vitally important that you begin the process as soon as you desire to sell your company and get an indication from a business broker that the business is indeed salable for an amount sufficient to meet your financial needs the rest of your life.
Put yourself in the shoes of the buyer. Begin the due diligence process as quickly as possible so you can remove all barriers to sale prior to the buyer entering your premises. Keeping the road to a successful close clear of impediments decreases the time between the buyer’s offer and the closing date. In a sale, time is not often good for a seller, so you want to decrease the time it takes to close.
Buyers are looking for reasons to decrease the sales price or adjust the terms of sale, and they are very good at finding them. They will look for things like malfeasance, undisclosed material risk (i.e. lawsuits), potential fraud, unrecorded revenues or expenses, omissions of tax payments, bad processes, obsolete equipment, etc.
The buyer is also looking for items that will affect the desired asking price of your company and deciding if he actually wants to purchase it. Before due diligence begins, you have controlled the information flow; after due diligence begins, you give up much control.
That is why it is extremely important that you and your advisory team clean up all contracts, agreements, stock ledger books, corporate records, leases, or lawsuits before you enter the marketplace.
This may sound overwhelming but we’re here to help. Contact us for a free evaluation to learn more.