Preparing for Buyer’s Due Diligence When Selling Your Business
Selling a business is no small thing – and neither is buying a business. It only makes sense that most buyers perform a thorough investigation of your business before committing to a purchase. Although a business may look promising and the owner has shared helpful information, they want to know what they are getting into by doing thorough research themselves. Review a slide deck on what buyers are looking for in a small business.
When performing due diligence, buyers will research things such as:
· Accurate business valuation
· Audited financial reports
· Tax filings, liens, and returns
· Credit arrangements
· Legal/liability issues (permits, licenses, or any threatening suspensions)
· Intellectual property
· Business operations
· Customer base
· Human resources
· Marketing information/reports
While the list is long, there are preventative measures you can take to ensure their due diligence will go off without a hitch. These are applicable to all business owners; by starting your business off right, your will have already prepared for due diligence if the time ever comes to sell:
Some of the preventive measures to prepare for due diligence:
1. Train employees how to report fraud– when your employees know your expectations and standards, they are more likely to uphold the same standards and report any inappropriate business transactions.
2. Enforce anti-fraud policies in the workplace– training them is not enough. Continually monitor and reiterate the importance of anti-fraud, and invest in your employees on a personal level.
3. Separate personal expenses and emotions from the business– keep all personal affairs out of the business to prevent blurred lines and illegal financial activity.
4. Ensure all taxes, forms, permits, and licenses are up to date– maintain your records. If needed, hire someone to keep track of all of this for you to ensure nothing goes unseen.
5. Provide proof of registered intellectual property– if you have any trademarks or copyrights, or other IP protection, make sure they are documented and held with the company.
6. Resolve any outstanding disputes– Take care of any ongoing legal actions or threatening disputes ahead of time.
7. Define employment roles and disclose contract information– Ensure that all employment positions are defined, signed, and up-to-date. Also include any sponsorship, supply, or lease agreements.
Pro Tip: I recommend using The Value Builder System, which shows a scorecard that grades business performance in the 8 key drivers of value (Financial Performance, Growth Potential, Switzerland Structure, Valuation Teeter Totter, Annuity-based Revenue, Competitor Differentiation, Customer Satisfaction and Business Performance with an Absent Owner). It only takes 13 minutes to generate your Value Builder Score.
Take the survey here:
Brett Pittsenbargar is a savvy business investor and turnaround strategist dedicated to assisting business owners reach their objective at every growth phase. With a background in business development and investment experience, Pittsenbargar understands that business is much more than written contracts, it is about the people working every day in the business who matter. View more articles at https://medium.com/@brettpittsenbargar
Disclaimer: This article is intended to give you general business information, not to provide specific legal or financial advice. Be sure to consult your attorney, accountant, and financial professionals for any specific questions relating to your business.