Hello! Most sellers and the typical broker, dreads the due diligence phase. To achieve a successful transaction, you must endure due diligence, so you might as well embrace it. So, you’ve received an offer and a successful closing is just around the corner – if you have adequately prepared and handle due diligence appropriately the process can be relatively painless. Have a positive mental attitude: you are just weeks away from a huge payday!
Identify Obstacles Early
You should start preparing for due diligence when you begin considering the decision to sell. Identify and resolve as many obstacles and issues as you can before putting your business up for sale. For those that you cannot resolve prior to selling the business, disclose the issues and position them in the most favorable way, aka as opportunities.
Disclose Negative Issues
One key to surviving the process is to eliminate foreseeable setbacks by disclosing any negative issues early, before due diligence ever begins. Disclosure allows you to present not only the problems faced by the business, but also possible solutions and opportunities for improvement. Buyers will appreciate your candor and you will begin to earn their trust.
Discuss the contents of a standard due diligence list with your advisors. Determine which items apply to your business and are likely to be requested by the buyer. Once a mutually agreeable offer has been negotiated, surprise the buyer by voluntarily providing a comprehensive due diligence package you have prepared that addresses most of what you anticipate will be requested. If the package contains more information than the buyer might request, so much the better. You will earn the buyer’s trust. When unknown negative surprises arise, your trustworthy relationship will be a huge benefit in finding ways to resolve setbacks.
The passage of time always works against the successful closing of a business sale transaction. If you or your advisors dither in responding to a buyer, it creates a harmful impression in the buyer’s mind: “Why is the seller taking so long to respond? What’s going on? Are they manipulating information? Have I uncovered something they do not want to discuss or disclose?” If you are unable to respond quickly, it is extremely important to immediately communicate why, and when the buyer can expect a response.
To recap, here’s how to prepare for the due diligence process:
Adopt a mindset of “embracing the process”.
Identify any obstacles to a successful sale before you put the business on the market.
Address and resolve as many of the identified obstacles as you can before selling your business.
Disclose unresolved issues up front, aka opportunities.
Avoid due diligence surprises by disclosing all known issues, regardless of your ability to position them as opportunities.
Develop a trustworthy relationship with the buyer to enable you to resolve unknown negative surprises that might arise.
Prepare for due diligence by reviewing a standard due diligence list with your intermediary and advisors.
At the appropriate time surprise the buyer by voluntarily preparing a due diligence package addressing most of, or even more than, what you anticipate the buyer will request. 8) Be sure you and your advisors respond to due diligence requests on a timely basis.