15 Feb A Seller’s Guide to Due Diligence
You’ve decided to sell your business. Now what? Once you find the right buyer, the buyer will want to verify any and all claims you make about your business. This process is called due diligence. It is long and arduous, and if it goes poorly, it can tank a deal. But with a little preparation, and the help of an experienced M&A firm, you can sail through due diligence and get a high sale price.
What is due diligence?
Once you sign the initial letter of intent, your team and the buyer will agree to a due diligence schedule. This is the process through which the buyer gathers information about your business so they can uncover any potential liabilities that could negatively impact the purchase price or even tank the deal. The buyer will ask specific questions, review various documents, and may interview your team or visit your office. The scope of due diligence varies from buyer to buyer. Larger deals usually require more significant due diligence.
Seller’s checklist: preparing for due diligence
Due diligence is all about assessing the risk the buyer undertakes as they embark on the deal. The following checklist can help sellers ensure buyers have all they need:
- Pay all outstanding taxes, and provide documentation showing that these bills are up to date.
- Ensure your structure is transparent, with clear documents outlining the structure.
- Ensure all shareholder documents are well-written and up to date. Make sure you control all shares, or that if you don’t, all shareholders have signed off on the deal.
- Provide clear information about the role of each staff member. Demonstrate their importance to the company, and provide any and all employment agreements.
- Document the role of the director in the director’s service agreement.
- Prepare your management team for interviews with the buyer.
- Document all intellectual property agreements. Ensure that all IP is properly protected. If it is not, follow up with the owners now to work out licensing agreements.
- Register your IP and ensure it is held by the company so that your business is the clear owner and does not have areas of trademark or copyright exposure.
- Check on all of your business contracts to sure they are signed and updated. Focus on supplier, sponsorship, and property agreements. Then provide an easy method for inspecting them. A virtual data room is ideal here.
- Resolve any disputes, including potential sources of litigation. Settle any outstanding lawsuits.
- Be prepared for a careful review of financial records, property documents, assets, tax statements, regulatory issues, information systems, and environmental compliance.
Due diligence is often the moment that determines whether a deal succeeds or fails. It’s not something you can rush through. You can’t just hope for the best. You must take a proactive role in preparing for this exhaustive investigation of your company. A little preparation goes a long way. Time is the enemy of every deal, so be prepared to move things along as quickly as possible by conducting your own sell-side due diligence first.
About Austin Dale Group
Austin Dale Group is a boutique investment banking firm for technology companies. Our clients include software companies, cloud solution providers, and IT managed services – as well as healthcare and other tech-enabled businesses.
We specialize in M&A and strategic growth advisory services for middle-market technology businesses with revenues up to $75 million. We help our clients prepare for a merger or acquisition, build shareholder value, and sell their business (or divest a division). We also work with companies that wish to acquire other companies as part of their growth strategy.