How do you prepare for due diligence?

Selling your business requires careful planning and preparation, particularly in the Due Diligence phase. This guide will help you produce a checklist to ensure you are prepared and ready for the due diligence process.

March 2022.3min read time
Selling your business requires careful planning and preparation, particularly in the Due Diligence phase. Roughly 50% of business sales collapse at this stage as buyers uncover details of a business and see no other choice but to abort the deal.
This guide will help you produce a checklist to ensure you are prepared and ready for the due diligence process.

What is Due Diligence?

Due diligence is when buyers conduct a thorough investigation before signing a contract or taking over a business. It is done to identify any possible problems or liabilities a company may have.

What should you expect during due diligence?

Here is what you will have to consider during the due diligence process:

  1. Start early
  2. Gather all info and make it available
  3. Be transparent
  4. Be patient
  5. Look at the business from buyers' perspective
  6. Keep things confidential

1. Start early 

Once you have reached negotiations with a buyer, the next stage will be due diligence. Before it comes to that stage, speak with your team of legal and financial advisors and try to anticipate what the buyer may ask for once the process has begun.

2. Gather everything

Even if there are certain documents that you feel a buyer is unlikely to ask for, it's best to have them prepared just in case. If a buyer asks for a document you have not prepared, it may take up to a week to present it, which may annoy the buyer and push them to back out.

3. Be transparent

A business sale is a significant act for both buyers and sellers. It requires a tremendous amount of effort and trust between the parties involved. To keep things running smoothly during the due diligence, it's best to be transparent as possible and hold nothing back. For instance, a seller may find a problem that was not disclosed and take legal action.

4. Be patient

The thought of countless solicitors, lawyers, accountants, and many other business people looking through your business's documents can be pretty startling. However, it is best to remain calm and patient in this situation; buyers usually take these extra precautions to be safe and understand the business they are buying.

5. Change perspective

Think from the buyers' point of view, not only during the due diligence but throughout the entire sale. Determined buyers will not let any excuses pass, so it's best to pick up on any flaws you have leading up to the due diligence, and the best way to do that is to think like a buyer trying to purchase your business.

6. Confidentiality

Due diligence is a susceptible part of a business sale- buyers finally see how the business operates and what liabilities or problems come with purchasing your business. Hence, it is best to keep information discussed strictly between those involved in the process. 

 Non Disclosure Agreement (NDA)

To ensure the due diligence and business sale stay confidential, you can ask the buyer to sign a Non-disclosure agreement (NDA). 

Due diligence is arguably the most crucial part of a business sale which the seller has a lot of control over. Therefore, efficiently preparing and managing due diligence will help seal the deal smoothly.