The Impact of Due Diligence When Selling Your Business
Think of due diligence as if it were a house inspection for your business – buyers are going to make sure they do their ‘due diligence' to see if buying you out is worth their money. Sure they could buy your business without doing any inspection, but they will be taking on a lot of risk by choosing to forego it. The more problems they find, the lower they’re going to pay.
So which elements of due diligence are important for your business? Keep reading to find out.
This is obviously the first thing buyers will go into before buying your business. That means combing through your financial statements, balance sheets, payables, and balance sheets. The prospective buyer wants to confirm that your company is reliable. This is why it is important it is recommended to get your finances audited by an accountant well ahead of time to catch and fix any issues that could cause a problem later on.
Another very important aspect of due diligence is your company’s reputation in the industry. A quick search on Google and social media platforms will help buyers understand what kind of reputation it has with employees, customers, and communities. If you know this is going to be a problem, consider hiring the services of a reputation management company before putting your business on the market.
Employees are the beating heart of your business – and without them, your business really won’t stand on its own. Think of it this way, if all your employees were to jump ship after learning that the business is changing owners, who is going to run it? This is why prospective buyers will try to understand how employees view their workplace.
Their first stop is probably reviewed sites such as Glassdoor and LinkedIn, Facebook, Google, and local papers to see how your business is viewed by the general public. Also do not forget the power of 'word of mouth' especially in small countries like ours, New Zealand word goes around very quickly.
Pro tip: Avoid exposing your employees to the buyer until you’re absolutely sure at least the Due Diligence is going to be satisfied. You don’t want to cause them unneeded stress and anxiety.
It can be tricky for prospective buyers to evaluate your customer base, especially when you aren’t being public about selling your business. However, buyers will want to make sure that your company’s major customers, those accounting for 50 to 70 percent of the income, will continue to do business with the company after it is no longer running under you. In some cases, the buyer may get a chance to talk directly to these customers to gauge their views on the sale. Although some sellers don’t appreciate this approach, it is sometimes necessary to close a deal.
If your business owns a lot of inventory, such as a distributor or manufacturer, then this is one area that the buyer will look into. It is important to get rid of low-quality inventory before they get caught up in the due diligence, because savvy buyers will catch on to any discrepancy, and that could lead to a lower appraisal of your business.
It is very unlikely that you will find a buyer who does not want to conduct due diligence on your company. This is why it is important to prepare for this inevitable process. Put yourself in your potential buyer’s shoes and get ahead of any issues that could lower the value of your pitch.
Here is my little sales pitch :)
Ready to sell your business? Serdar Kabul is a leading business broker who can help you prepare your business for sale with complete confidentiality, including the undertaking of due diligence – from start to completion.
Click here to get in touch with us to successfully complete the due diligence process and achieve the closure of your deal.