Selling your business is very often a complex process: from comprehensive financial number crunching, through to the legal stuff, and onto the positioning of your business to secure the best possible price for the right buyer.
This is far from a process for the lighthearted, and at the center of it; for both the buyer and seller, should be a focus on protection through robust due diligence.
So, here we outline the essential tips that should guide your due diligence efforts.
Establish the level of due diligence.
It’s to be expected that any buyer of your business will want to know that a business is worth the asking price. Beyond this they will want to know that the business is operating as you report it to be. However the level of due diligence that a buyer demands may differ from buyer to buyer.
What’s more, bear in mind that just because a singular representative of a business states their expectations from due diligence is limited, that the shareholders behind them might not necessarily be in agreement.
Appreciate the reality of due diligence.
Due diligence, an investigation or audit of a potential investment, can be a time consuming and altogether painful ordeal for both buyer and seller alike, however it is, nevertheless, necessary. It may be lengthy and will most likely be costly for one or both parties.
So, planning ahead for such activities, and factoring in potential costs, should serve as an essential element when planning to sell your business. Beyond this you should also be prepared for questions from the potential buyer that may ask why certain information is taking so long to be sent, or why certain data isn’t readily available. Preparing to answer these questions and explaining information can be expected and will help keep relations healthy.
Approach due diligence from a collaborative viewpoint.
Buyer/seller relations can quickly break down during what can be a stressful due diligence processes, leading in the worst of cases to an abandoned sale. Aperio Intelligence, a London based business management consultancy, suggests it’s important that, as a buyer, you approach due diligence from a collaborative, helpful viewpoint, rather than from one that is confrontational.
Don’t underestimate the importance of issues.
Sometimes it may be tempting to assume that previous sticky issues won’t come to light for the potential buyer during due diligence. With some common examples of such including: a) Poor or legally unenforceable customer or supplier contracts; b) Employment contracts that are inappropriate, even where key staff are concerned; c) Inadequate intellectual property protection (which can be a particularly serious issue for tech ); and d) Questionable or irregular share capital which have been poorly documented and that fail to meet legal requirements.
Anticipate administrative costs.
In years gone by due diligence and the professionals that it may have required was generally expected to be funded by the interested buyer, however today this is far from always the case. If you are selling your business, then be prepared to cover at least some of the process costs and establish from the start the providers for respective services.
Consider due diligence tasks prior to securing a buyer.
Undertaking various due diligence tasks prior to securing the first inquiry can seriously improve the marketability of your business, as well as potentially speed up the entire sale of your business.
Key due diligence tasks may include: a) A definition of corporate and shareholding structures; b) Accounts and tax returns running back to the beginning of incorporation; c) Coverage of any legal proceedings or litigation that may be ongoing; d) Enquiries that are outstanding with HMRC; e) Full details of contracts that cover both suppliers and employees; and f) Any further terms and conditions that employees are legally obliged to adhere to.
You should, however, note there may be occasions where buyers are skeptical of due diligence that has been undertaken prior to their involvement, and they may well wish to undertake their own due diligence. In such an instance you should welcome any activities that the buyer deems necessary.
This article has been edited and condensed.
Cormac Reynolds works and writes for a variety of marketing and internet blogs. He loves all sorts of different aspects of blogging and also has a big interest in bludgeoning the culinary arts. Connect with @brightoncormac on Twitter.
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