When selling your business, the due diligence process is a critical stage. Potential buyers will thoroughly examine your business to assess its value and identify any potential risks. As a seller, understanding what buyers want to know during due diligence can help you prepare and position your business for a successful sale. This article provides details about the kinds of information buyers seek and how to prepare for the due diligence process.
1. Financial information
Buyers will want a comprehensive understanding of your business's financial health. Be ready to provide documents such as:
- Income statements, balance sheets, and cash flow statements for the past three to five years
- Tax returns and audits
- Accounts receivable and payable
- Details of any existing debt, loans, or liens
To prepare, ensure all your financial records are up-to-date and accurately reflect your business's financial status. It may be worth hiring an accountant to review your documents.
2. Legal and regulatory compliance
Buyers will want assurance that your business is in good legal standing. This could involve:
- Reviewing contracts with clients, suppliers, and employees
- Verifying compliance with relevant industry regulations and laws
- Checking for any ongoing or potential litigation
To prepare, gather all legal documents, contracts, and licenses. Consult with a lawyer to ensure all legal matters are in order and that you are fully compliant with all relevant regulations.
3. Operations and assets
Buyers will want to understand the day-to-day operations of your business and the condition of your physical assets. They may wish to review the following:
- The state and value of physical assets, such as equipment, inventory, or real estate
- Operational procedures and manuals
- Supply chain details and vendor relationships
Preparing for this aspect involves documenting all operational processes and confirming physical assets are well-maintained and accurately valued.
4. Market position and competition
Buyers will be interested in your business's position in the market. They'll likely want to know the following:
- Who your competitors are and how you compare
- Your market share
- The overall health and trends of your industry
To prepare, compile information about your market, including industry reports, competitor analysis, and your unique selling propositions.
5. Human resources
If your business has employees, buyers will want to understand their roles, skills, and value to the company. They may request the following:
- Organizational charts
- Employee contracts and benefits
- Information about critical employees and their functions
Ensure you have updated employee records, including contracts and performance reviews
6. Intellectual property
If your business has intellectual property (IP), such as patents, trademarks, or copyrights, buyers will want to assess their value and ensure they are legally protected. Have all IP documentation readily available.
Conducting due diligence is an exhaustive process, and potential buyers will want to explore every aspect of your business. Being well-prepared not only demonstrates transparency and professionalism but can also expedite the sale process and increase the perceived value of your business. Consider seeking advice from legal and financial professionals to ensure you're fully prepared for this crucial stage of the business sale process.
Written and published by IG Wealth Management as a general source of information only, believed to be accurate as of the date of publishing. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on up to date withholding rules and rates and on your specific circumstances from an IG Wealth Management Consultant.