How to Do Due Diligence Before a Company Sale
When a company is about to be sold, it is more than worth taking the time to make sure you do it right. It is rare in life that the stakes are as high as when someone buys or sells a company. In the largest tech acquisition in history, Facebook paid $19 billion to acquire WhatsApp!
Although most company sales do not involve stakes that are quite that high, it is still vital to do your due diligence as a sale approaches. Some people wonder if taking the time to do their due diligence is truly necessary, but there are decades of business experience that show the importance of following this business practice.
So what is due diligence all about, and what do you need to do before finalizing a company sale? Read on to learn all about the most important steps to focus on as a company sale approaches!
What Is Due Diligence?
Many buyers and sellers alike dread the due diligence process that proceeds a business sale. Doing your due diligence is notorious for being tedious and at times it can even feel pointless.
The process itself does not fascinate many people. However, the tedium can get even worse when you realize that doing your due diligence is not supposed to affect any part of the sale. By the time you are arranging to do your due diligence, everyone is already agreed on the intended outcome of the process.
If everything goes well, nothing will change about the sale as the buyer gets the last few necessary details about the company they want to buy.
The Importance of Following Due Diligence Guide Tips
On the other hand, there is always some chance that a vital piece of information will transform the nature of the sale process. That is why doing your due diligence before a company sale is a little bit like doing your taxes.
Almost nobody enjoys it, but there are overwhelmingly good reasons to take the time to do so, anyway. The important thing is to figure out how to do so with efficiency and as little stress as possible.
So what does the due diligence process consist of? The due diligence process consists of the seller providing the buyer with the tiny details that make up a company.
The buyer needs to confirm that everything is in order and that there are no surprises before they seal the deal. In practice, that means that going through the due diligence process consists of providing detailed documentation and descriptions of every relevant aspect of the business.
In some cases, merely providing the buyer with all of this information displays enough competence that the buyer may not review every scrap of data they receive. However, the buyer can only have that kind of trust because of the possibility that they will scrutinize everything about the company they are considering buying.
That means it is important to be thorough and provide the buyer with anything that might have any bearing on the sale.
Follow Due Diligence Tips With Financial Information
Perhaps the most important information to prepare for the buyer is everything related to the financials of the company. This will include things like revenue for as much of the history of the company as possible to provide.
The buyer will need more than the total revenue or net revenue numbers, though. Make sure to provide as much relevant data as possible. This can include total revenue along with total costs.
You should also specify what kind of accounting process you are using to calculate revenue. The buyer will also need all other information contained in monthly financial statements.
In the ideal case, you will have all of this information on a single platform. However, if necessary, provide the buyer with all relevant financial information even if it is scattered across a variety of platforms and documents.
The buyer will probably want to figure out what kind of customer retention your company has achieved in the past. Any other information you can provide relevant to this dynamic will therefore also be helpful.
Make sure to include information about the customers behind every source of revenue. The numbers associated with company transactions alone may not be enough.
Provide Clear Information About Human Resources
Buyers buy companies with the idea that they can improve them in some way. In many cases, buyers think that they may be able to round out deficiencies in company talent. For that reason, it is important to provide them with all the information they need to assess their ability to do so.
That includes a company census that lists every employee, including past employees. You will also need to provide information regarding the salaries, benefits, and start and end dates of each employee.
Provide a company employee organization chart. If you want to be helpful, you can highlight any areas where a potential employee or company leader is missing.
Gather Relevant Information About Products
The buyer needs to have access to all relevant information about whatever product or service your company provides. They need to have enough information that they could recreate your product or service from scratch if they wanted to do so.
Not only that, but they need to know how to market your product and price it. Make sure that they know everything about how you provide your product or service and how you present it to potential customers.
The best due diligence advice emphasizes doing more than necessary if you can. Taking the time to thoroughly follow due diligence tips can help a company sale go as smoothly as possible.
Due Diligence Before a Company Sale
As a company sale comes up, it is always essential to take the time to do your due diligence. The more experience people have with company sales, the more they appreciate the value of this established business practice. Doing your due diligence is an investment that will more than pay for itself in the future.
To learn more about how to do your due diligence before a company sale, reach out and get in touch with us here!