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Reviewing the Due Diligence Period

Posted by Remy Belanger in
Due Diligence on Ring Binder. Blured, Toned Image.

One of the most important components of your negotiation happens after a letter of intent has been signed, allowing the buyer to do a deep dive into the company. The diligence period is critical for the seller of the business because this is the opportunity for the intended buyer to review all of the details you have previously shared and to raise questions about things that could have been misrepresented either intentionally or on accident.

The information shared during the diligence period should be enough to encourage the buyer of the business to take the forward action step in purchasing it. Buyers go through the due diligence period for a couple of different reasons. First of all, they want to verify that everything that was represented in the sales perspective was indeed accurate and to identify whether or not any other potential issues or problems have not been disclosed that would block them from going through with the sale.

Most buyers want to see as much as they can during the due diligence period and unless you have some really good reason to block something, there is a solid chance you will need to provide as much information as possible. A buyer that does a good job on the diligence process will request to see bank statements, vendor agreements, multiple years of accounting statements, tax returns, and more. The buyer will likely come to your business site if you have a physical location to do extensive research on the structure of your current operation as well.

There is a lot you can do through the diligence process to make the buyer feel at ease. Any misrepresentation can be especially problematic from the perspective of the business seller because it can make the buyer feel as though you have been dishonest. You can expedite the process of due diligence in a big way by ensuring that you have as much information as possible on day one of the diligence period. It shows preparation and honesty and makes it easier for the buyer to carry out their entire process.

Things that are a good idea to have collected and organized early on include access to any of your processes or standard operating procedures, access to all important software as a service apps, the last three years of your tax returns for the business, bank statements for up to the last 18 months, credit card and merchant processing statements, and detailed financial statements for the last couple of years with breakdowns of expenses. One of the biggest concerns during the due diligence period from the perspective of the company’s seller is dealing with confidentiality.

Many owners choose not to tell their employees for this reason that they are selling their business because it can make the employees feel uncomfortable. In some cases, however, you might want to notify them because the diligence period could reveal that you are in the process of attempting to sell the company to somebody else. If you are thinking about selling your company and need assistance from an experienced and trusted business broker, the team at Website Closers leverages their years of experience selling businesses of all types to help connect you with the right buyer.