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Due Diligence
The Speed Bump to Many a Sale…
By Rick McDonald
Not unlike the Inspection Report, a home buyer has prepared before finalizing the sale of a residential property, any potential buyer of your business is going to conduct a “Due Diligence” process.
They’ll go through all aspects of your business before settling on the final “price”.
A Due Diligence process is aimed at revealing all the warts, all the hidden aspects of your business that may or may not have been fully discovered as yet.
Fundamentally, the Due Diligence process will, at best, create reasons to lower the selling price, or as is often the case, kill the deal in its tracks.
You have to be prepared for this process and be proactive.
Here is what you can generally expect to have to share in the “Data Room” (and know this; the details of each will be comprehensive):
- Corporate status, filings, and proof of good standing in the municipalities you operate within
- Any licenses or certifications required by your business
- Proof of ownership
- At least 3 years of quarterly financial statements
- Adjustments to earnings and add-backs (EBITDA)
- Proof of all taxes liens and debt obligations being paid, or their current status
- A list of all assets owned. Leased or otherwise used in any fashion by the company
- History of payroll and HR related issues
- An organizational chart of all employees.
- All benefit plans, including Medical and Worker’s Compensation plans
- A history of Worker’s Compensation claims
- Existing contracts with key employees
- A list of all customers by sales, product lines, and history of repeat business.
- Mortgages, leases or anything to do with the premises
- Identification of, and any agreements with vendors or suppliers
The list goes on.
Your team will need to be prepared to respond to requests in a timely fashion, further adding to the confidence a buyer has that your company is run properly and in good standing.
Anything amiss will cause doubt, and doubt is a risk, and risk deflates the Multiple, and a deflating Multiple erodes Value.
It is as simple as that…
The Due Diligence Process is daunting, intimidating, and critical. You must be prepared to go into this process ready to meet the requests and show confidence in how your company shines!
Remember to get your copy of the book: “Exit The Family Business” to discover the potential risks a buyer looks at when valuing your business and the way to objectively view each aspect of your business. It explores standard operating procedures that could be invaluable in making sure you are ready for the Due Diligence process.
Take our 10-minute Exit Valuation Survey to see the current status of your business.
How It Works
It's time to face the truth. If you don't plan your exit correctly, you could end up working until you die. Your journey to a successful sale and increasing the value of your business by 30-50% starts with taking our Exit Valuation Survey. This tells us exactly where you are now, the exact performance of your business, and what you need to do to improve. You can access your buyer Risk Report and speak to our analyst team on a complimentary call to discuss your results, increasing value and exit options.
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*The Lower Middle Market is comprised of businesses worth $5-$30 million, typically having EBITDA of $1 million - $4 million.
The 7 Pillars of Value Creation is our name for our work as Business brokerage services and related consulting pertaining to business sales, mergers, acquisitions and business valuation. Exit The Family Business the downloadable guide and any accompanying assets or affiliates are provided for informational and educational purposes only. It is not intended to provide tax, accounting or legal advice, nor is it an offer or solicitation to buy or sell, an endorsement or sponsorship of any company, security or fund. Certain owners, officers or affiliates may be associated with investment firms and may make referrals from time to time for such services, but this does not constitute investment advice, nor should it be construed as Exit The Family Business being in that business. We always suggest you seek professional advice. Past results are not a guarantee of future results.