A due diligence checklist is one of the most important steps you must take in selling your business because it can either make or spoil the entire process, thus leaving you with a burnt finger. This article will share all the information you need to prepare a Due Diligence Checklist for selling a business.
What is due diligence when you buy a business?
The process of Due diligence identifies that the information the seller provides about the business is correct and accurate. In almost all sales, the buyers expect Due Diligence. The business conditions should match up with the buyer’s expectations before making the deal. If there are any problems revealed, this is the time to address them. Be sure to prepare yourself for this part before time.
Why is the Due Diligence Process Important when Selling Your Business?
Due diligence goes both ways; the buyers gather all possible information about the business.
When you’re selling your business, it’s essential to apply the same due diligence while you investigate for the prospective buyer: Does the buyer have all assets to purchase the business? The seller doesn’t want to agree on a fizzle purchase when the seller knows that the buyer doesn’t have the financial support needed to pay for a business.
The seller has all the rights to do due diligence to determine the buyer’s net worth.
What should a due diligence checklist include?
A due diligence checklist must cover various aspects of the prospective business, including operations, employee relations, financial documents, products, legal issues, customer data, and assets. Due diligence is a very complex process that requires the assistance of your accountant and attorney. Consider hiring professionals like Julie Brigman to aid this process.
Conducting the due diligence process is the seller’s responsibility. The seller’s due diligence process focuses on the buyer’s qualifications to finish the purchase and operate the business to meet the seller’s expectations, unlike the buyer’s due diligence process.
Unfortunately, seller due diligence doesn’t always gain the attention it deserves. Sometimes, sellers mistakenly believe that their broker has already performed due diligence on the buyer.
Before setting your business on the market, you need to prepare for the seller’s due diligence. Creating a simple due diligence checklist eliminates all the confusion which arises during a sale. The following construct a typical due diligence checklist:
Before investing too much time in a prospective buyer, it’s essential to conduct due diligence about his background and know whether he genuinely has an interest in your business or not. Check for industry reputation, prior business experience, and the reasons why he wants to buy your company. All these affairs can affect the remaining sales process.
When the buyer requests to see your company’s financial information, then it’s fair to turn around and request the buyer’s financials. Without an adequate understanding of the buyer’s credit history and financial capacity, you won’t be able to assess his ability to see the deal through to its execution.
With the help of your broker, check the buyer’s background to see his legal status. You’re looking for things like pending litigation judgments and anything else that could jeopardize his ability to complete the sale or successfully operate the business after shutting down.
Like it or not, after ownership has shifted hands, your reputation may be tied to the company’s reputation, especially if the company decides to continue operating the business under its current name. During due diligence, evaluate the buyer’s reputation and ethical character before you sign a contract.
Buyers often make concessions during negotiations. But those concessions have no value if the buyer does not deliver on his promises. Still, before you agree to a settlement, you should conduct the process of due diligence to evaluate the ability of the buyer to execute his part of the bargain.
What documents are needed to sell your business?
- Tax returns – the businesses need to provide tax returns from at least the past three years
- Lease agreements – gather Lease agreements for property, office furniture equipment, vehicles.
- Copy of the employee handbook
- A written statement stating the reasons for selling your business
How can you figure out the worth of your business?
Despite this, you’re going to need facts and figures to support the sales amount. It can help list all the businesses’ assets, whether tangible or intangible, and value them. You can also review accounts, weighing future profits against costs, and then can set a deal on them.
Final take on finding a broker for selling a business
Unless you’re going to market your business to a family member or an employee, you’ll hire a broker. Julie Brigman is one of the best brokers you can find who can advise you on determining the sales value.
Julie Brigman offers a wide range of services for business buyers and sellers. If you’re considering buying or selling a business, contact her for discussion.