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Due Diligence Checklist for Selling a Business

Due diligence

Plenty of entrepreneurs find they have a great skill and talent for launching products that customers want and are in high demand, and at attracting their customer base and building up brand recognition. The result is a thriving online retail shop that the owner can be proud of, and one the founder has every reason to believe will sell to a qualified buyer when the time is right.

But they can also find that selling a business is far more complex than selling products and services, and in fact, it can seem overwhelming.

Selling a business is a complex process, and a challenging one for any seller to navigate on their own. That’s why it’s important to start this journey by reaching out for assistance from a professional business broker, such as the ones who have collectively sold more than $1 billion worth of transactions at Website Closers. Our skilled brokers can not only help you prepare all the legal documents necessary for the sale and get you a professional Business Valuation, they can also act as negotiators during the sales process.

It also helps any seller to know in advance all the documentation, research, and planning that’s necessary when you’re getting ready for the sale. Now is the time to explore your options, and to start a due diligence checklist for selling a business.
A checklist for selling a business will prove to be a tremendous resource once you’ve found a potential buyer.

So, how can you best prepare for your due diligence when selling a business?

It’s important to have an efficient due diligence process from the beginning of your sales journey. You can start by creating a due diligence checklist for selling a business, since a standard due diligence will virtually always include:

  • · Financial documents
  • · Legal papers
  • · Review of operations
  • · Customer data
  • · Information on assets and products
  • · Employee information

Putting together a due diligence checklist for selling a business gets easier when you work with a professional business broker like the ones at Website Closers. Due diligence can get complex, so the experience that business brokers have to offer makes it a much smoother process. These brokers also understand the selling a business due diligence process from past experience.

Let’s review the selling a business due diligence process, and some of the items that should be on your checklist of items that get provided to your prospective buyer.

First, include information about your financials. Your audited financial statements from the past 2-3 years will work. You also want to provide statements on your income and cash flow, and a review of your balance sheets and accounts payable and receivable.

Other important financials include:

  • · SDE statement
  • · Tax returns
  • · Debts and any liabilities
  • · Gross profit margins
  • · Fixed and variable expenses
  • · Inventory of products and equipment

Next, review with your prospective buyer how the business is structured. Be prepared to show how your company makes money and how trends within your industry have benefitted your sales. Provide the buyer with projections of your company’s future earnings potential, your business model, your customer demographics, and your operational costs. Information could also be provided on your company’s bylaws, products and services, marketing plan, current investors or shareholders, and brand identity.

If your company has contracts with its suppliers, manufacturers, or marketing agencies, be ready to review those with your buyer. You should also be ready to review:

  • · Existing loan agreements
  • · Lines of credit
  • · Any equipment that is being leased
  • · Non-compete agreements
  • · Any outstanding liens
  • · Sales or distribution agreements

Buyers will also want to receive information about both your customers and employees. Customer lists should be made available, including information about your largest customers and what they have purchased from you over the past few years. Subscriber lists, sales records, and a review of your purchasing and refund policies should also be reviewed.

Information about your employees should include who your key employees are, what tasks they handle, and how important their responsibilities are to the daily functions of the business. Identify employees interested in staying in their position under new ownership. Any agreements with contractors should be reviewed, along with payroll information, employee benefits and retirement plans, and your Human Resources policies.

Review any legal issues and legal documents the company may have that are unresolved, such as any pending litigation. You should also provide information on any attorneys or law firms representing the company, and all insurance coverage.
Review any physical assets the company has, which can include:

  • · Real estate
  • · Warehouses
  • · Current product inventory
  • · Any company-owned automobiles

Finally, review your intellectual properties, which could include:

  • · Trademarks
  • · Copyrights
  • · Patents owned by the company
  • · Al data and digital information.

Even as you provide this wealth of information, it’s common for issues to arise and requests from buyers for more details during due diligence. It’s during those moments when a seller is going to benefit most from having an experienced business broker at the negotiating table. The professional brokers at Website Closers have invaluable experience dealing with the due diligence process and ensuring no last-minute snags slow down or jeopardize the sales process.

There is a lot that goes into due diligence – but with the right qualified broker at your side, it can proceed much more smoothly.