In the age of information, buyers have access to more information than ever before. According to research done by Neilson, more than half of consumers research products online before making a purchase. They compare reviews and prices to make the best purchase decision. As consumers become accustomed to having access to so much information, the due diligence period in a business transaction has become even more vital to the outcome of transaction. Having clear and concise operations and financial reports is more important than ever.
Discoveries made during due diligence can severely impact the terms of a deal, lowering the valuation of the business or even causing the deal to fall through. In this article, I will identify a couple of factors for sellers to consider during due diligence in order to have smooth sailing through this critical period of a deal.
Every business is unique and will require a custom approach. I can work with you to help you have the best possible experience. Typically, the best place to start is by conducting a sell-side due diligence. This is essentially a trial run for due diligence, covering all areas that will be investigated during the formal due diligence. This practice run will identify any problem areas and give you time to resolve them.
Having strong documentation in place is another best practice going into due diligence. Spending time to produce clear, analytical documentation that supports valuation, explains cash flows, justifies addbacks and creates clear forecasting models will benefit you during the due diligence period. Clear documentation will not only make buyers satisfied and confident in their purchase decision, but it will give you peace of mind during due diligence.
A final consideration for your due diligence period is to use improvements in technology and operations improvements to boost your EBITDA. During sell-side due diligence, conducting technology and operations due diligence can identify improvement opportunities. Capitalize on these opportunities to add value to your business.
Due diligence is all about preparation. Time spent up front will stop you from losing value later. With over thirty years of experience, I’ve seen it all. Let’s talk about your due diligence.