Preparing for Due Diligence

Most transactions, of any size, are solidified or collapse during the due diligence process. If there are ever mistakes made by a seller, they are the lack of planning and preparation for a deep review by potential buyers. The buyers not only have to get to the details for their own purposes, but also for their bank, accountant, and attorney.

The buyers will ask to see corporate records, bank account records, and invoices and bills to match the financial statements. They will want to review payables to ensure that accounts are not past due. The business needs to have a good database of customer records, last billed, last paid, service records, etc. Has there been proper insurance coverage for the business or will the buyers have to increase insurance expense to cover the shortfall?

Make sure the company has an operations manual and employee manual. Who are the professional contacts of the business? Who can the buyers call if there are questions regarding website and database service, computer service, suppliers? Make it easy for buyers to see the information to increase their comfort level and to improve the chances of getting to the closing table.

If the buyers have to beg for information, or if it takes weeks to pull the information together, the buyers will see red flags. And as always, time kills deals. Talk to an Apex Business Advisor for more information.