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What Is Likely to Be Requested During the Due Diligence Phase?

Posted by Izach Porter in Articles

Due diligence is a crucial aspect of selling your online business. Whether you are the buyer for an online business and are contemplating backing up all of the materials that the prospective seller has already shared with you, or if you’re thinking of listing your own online business for sale, you need to familiar with the due diligence.

Due diligence is one of the later phases in selling an online business. This comes after the letter of intent has been agreed upon and signed. This then initiates the due diligence phase of the deal. This is an exclusive period in the business deal in which you are unable to offer your business for sale to any other buyers.

The purpose of due diligence is to verify any of the claims that you previously made about the business. This makes it all the more important to ensure that your financials are up to date and accurate before you even list your company for sale because all of this information will be thoroughly checked. You must be honest during this phase, such that due diligence confirms the prospective of a buyer who is already interested in purchasing your company.

If you have shared that you have made a certain amount of money, for example, due diligence is the phase of the business purchasing process in which that individual will look through your financial statements to verify that this matches up with what you have previously claimed.

At any time during the due diligence phase, you need to recognize that the overall value of the business or the original offer that a buyer submitted could be reduced greatly if the buyer notices problems with the company. For example, if a buyer digs into the financials and other details during the due diligence process, they might find that some of the inventory was stored for a long period of time, or that a relationship with a key supplier is holding the business together.

If there is the possibility for devaluations as a result of these problems, a buyer is well within their rights to factor in a lower price than what they originally offered or were willing to pay to adjust for the risk they have discovered during due diligence.

There are many different things that might be requested for a due diligence process and as the seller of your online business you should be prepared and have these organized well in advance.

These are likely materials you already gathered during your own business valuation, and include:

  • Staff lists
  • Interviews with staff
  • Merchant statements
  • Bank statements
  • PayPal account statements
  • Staff contracts
  • Supplier contracts
  • Sub-contractor contact information
  • Customer lists
  • Source codes
  • Credit card processing statements
  • Business processes and systems overview
  • Historical and current tax returns
  • Balance sheets
  • Interviews with customers

An online business has a different due diligence process than a brick and mortar company, which means that you must be prepared for the reconciliation of bank statements with your online business and the overall value of the traffic on your site. Consult with an experienced business broker to get more support.