A question that often crops up when we discuss the sales process with our clients is what’s involved in the due diligence process? This article explores the key steps involved in due diligence when selling your business.
Clearly, a potential buyer wants to minimise risks and be in a position to make an informed decision when buying a business. With a focus on key issues including legal and financial, due diligence is a detailed examination of your business by a potential buyer.
If you are planning to sell your business, having the core issues at front of mind will help you prepare for sale. Being on the front foot with well organised records and documentation will help to streamline the process, build trust with prospective buyers and can expedite the deal process.
Key Aspects of Due Diligence
Financials: Of course, financial due diligence is a crucial element of the process, so it’s important to review and have in order your financial documentation, ensuring data is up to date, accurate and accessible. A buyer will want to view financial statements and accounts, cash flow projections, tax liabilities, debt and any financial data that enables them to evaluate current and future profitability.
Legal and regulatory: Fundamental information that assures a buyer as to the legal ownership of the business and assets including real estate, will be an essential part of the process. Buyers may want to review contracts, licences, agreements, insurances, IP and other key legal documents to understand any potential liabilities. Compliance with environmental regulations, H&S standards and other regulatory requirements may be reviewed, so easy access to appropriate, up to date certifications will assist the process.
Operations: An evaluation of your systems, processes and procedures can help buyers understand how your business functions day to day. This could involve IT infrastructure, operational efficiency and supply chain management. In reviewing operational aspects of your business, your organisational structure and assessment of your staff resource along with HR records, payroll, contracts and policy documentation will be of interest.
Customers and markets: An important aspect of your business attractiveness is your customer base and market conditions that help a prospective buyer understand future potential. A review of marketing strategy and brand recognition along with market intel and customer analytics can support your proposition alongside any detailed research the buyer carries out themselves.
Depending on the size and complexity of your business, overall timescales will vary. It can be relatively quick, just a few days perhaps for a small business – or several weeks for a more complex operation, or where problems arise.
Whilst this article outlines some key areas of interest in most due diligence processes, every business – and every transaction – is different. Depending on your product or service offering, the size and structure of your organisation and the buyer’s own strategy, different issues can take prominence for buyers.
To discuss your business sale or to find out more about the process, contact us for a confidential chat.
