Everyone has heard of the process called due diligence. But you might be unclear about its meaning unless you’ve been through this process. In simple words, It’s a process of de-risking the acquisition on the buyer’s part. It helps to check out and validate that what you say is accurate and factual & expose and uncover your business problems.
We can say that due diligence is like performing a home inspection before buying a house to understand it better. Of course, you can buy a house without assessing, but you are taking a big risk by not having a look under the roof first. So as a seller, it’s also worth recognizing what buyers are going to look for when they study your company. They will pay a lower price if they find any red flags. So, read on to know what to expect in Due Diligence if you sell your company?
What are the elements you can expect a buyer to look at when they perform due diligence?
- Determining whether the projections that the seller provides for future financial performance are supportable or not
- Confirming the historical financial results as previously presented by the seller to the buyer before signing the letter of intent
- Determining if the company’s financial records and systems are adequate to support future growth.
You can conduct financial due diligence by following these steps:
- Examine annual and quarterly financial information
- Review sales and gross profits
- Evaluate the accounts receivable
- Review past projections and results
- Look at future projections
- Get a history of pricing policies and past increases
- Ask for all business tax details
- Review summary of debts and their terms
- Prepare a summary of all current investors
- Get an overview of all shareholders
Legal issues might range from regulatory issues to potential litigation exposure to contracts that may require the other party’s consent before finishing an acquisition to be lawfully assigned to the buyer.
It is a complex process, and therefore you’ll need an expert broker like Julie Brigman who can help you to understand better, assess, and solidify legal paperwork like:
- Business plans
- Litigation processes
While these elements are essential to review, contracts are necessary to detail since they define your relationships with third parties. And if you want to make your contracts transferable without the other parties’ permission, by including an assignability clause, make sure that there is no “right to deny a contract transfer” or any other similar provisions.
Buyers should understand how employees view their place of work as it is one of the emerging areas in the due diligence process. That means reviewing sites or how the company ranks in the best places to work lists, surveying employees on how they feel about working for the company. But some sellers are scared of taking this step, especially if they haven’t disclosed that they are selling their company. As a seller, allow the buyer to talk or survey employees only when the deal is about to close to avoid exposing employees to unnecessary stress and worry.
4. Company Reputation and Culture
Evaluating customer and employee relationships isn’t straightforward like reviewing legal or financial information, especially if you don’t want to disclose that you’re selling your company. However, a good broker can help you out. They’ll do market research that will come in handy to give to the prospective buyer to help them forecast revenue levels after you sell your company. Hire Julie Brigman to do this if you need to keep the sale confidential.
Keep in mind the reputation factor depending on the nature of your business. Reputation is at play because related information is readily available online and may play a crucial role in the buyer’s decision-making journey and the negotiation process.
To Better Understand What to Expect in Due Diligence If You Sell Your Company, Contact Julie Brigman
The redder flags the potential buyer finds, especially where it might contradict something you initially claimed, the less likely you are getting the price you want–or even to close a deal at all. If you want to sell your company for the best possible price, take the time now to get rid of all the red flags you have in your closet by hiring Julie Brigman.
Whether you’re buying or selling a business, you’ll want a qualified business broker on your side from the start. An expert like Julie Brigman will spearhead the due diligence process, ensure you comply, manage complex paperwork, and make the selling process as painless as possible. Most importantly, she can help you get the best price for your business. So, contact her now.