Prepared Sellers Survive Due Diligence

The due diligence phase of purchasing a business is the point in the sales process where buyers and their deal professionals begin to actively scrutinize a business and consider the dynamics that will either validate the agreed sale price or justify lowering it. It’s also the point where over 50% of deals die.

What may have been a sweet deal for the Seller can quickly sour as buyers begin renegotiating deal terms. Due Diligence often uncovers items such as legacy customer agreements, unfavorable employee or supplier agreements, key employee issues, the need for capital replacements or more working capital, high customer concentrations, surprise expenses, and so on. Unprepared business owners have a rough time through due diligence, which simply means you need to be prepared!

Three Tips for being prepared to survive due diligence:

1. Identify potential deal killers in advance. Work with deal professionals to proactively identify dynamics of your business that may be of concern to buyers. Once identified, you can explore how they affect your business value, and remove or mitigate those that may cause buyers to walk away. Finding potential deal killers in advance helps you prepare to discuss them with buyers and negotiate with confidence.

2. Be Responsive! Due diligence comes with lots of questions and requests for detailed business information. Sellers that drag their feet in providing information or can’t make decisions on how to respond to inquiries, raise concerns for buyers. Prepare in advance by having current financial reports, accurate inventory, a comprehensive equipment list. Other types of information buyers are interested in are sales and operations metrics, key customer information, vendor and employee information. When your business information is ready to go you can more quickly respond to requests, building trust and credibility with buyers.

3. Remain Calm, Flexible and Patient. Expect that due diligence may take longer than you want, and you will be asked for a lot of information. Expect invasive questions and be prepared for buyers asking to renegotiate terms as you get closer to a closing date. The result you want is to get the deal done, so remain flexible and keep in mind there are many roads to take to arrive at a good deal. Rely on your deal team to suggest alternatives and avoid drawing hard lines on deal terms – instead collaborate to see if there is another way to get to the result you want.

By preparing in advance, you can confidently navigate through due diligence to achieve a successful sale. Contact us to find out how our online Seller Insights can help you to maximize the proceeds you get from selling your business.