A deal can fall apart during the due diligence process. Many business owners feel a sense of relief that their deal is near finalization once they have a signed letter of intent. Remember, the due diligence state is typically yet to come. Due diligence is an essential step that protects buyers. Sellers should be well prepared to have things in good shape far in advance. Here are three areas where a deal can fall apart.
Products and Equipment
Equipment is carefully evaluated during due diligence when the sale involves a business that handles manufacturing. All aspects of the process will be examined. For example, buyers will be looking for age and value of the equipment, information about suppliers, etc. If you have loose ends with your equipment or facility, this should be handled in advance if possible.
Due diligence will likely include analysis of product lines and inventory. They will be considering how the sales are spread among the product lines. They will also think about supplies and how likely they are to be stable once the business switches hands.
Buyers will want to know where the sales are coming from. They will want to look at breakdowns of customers so they can consider the company’s market share.
Buyers will be thinking about the assets like intellectual property. A buyer will want to know if all trademarks, patents and copyrights will be transferred during the sale. If not, it can be a big cause of concern for buyers.
Buyers will be looking for established staff members who are unlikely to leave. It is important to fix any staffing problems that might interfere with a buyer’s ability to properly run the business.
A buyer will want to carefully examine accounts receivable. If you have bad debt, you will want to sort out these kinds of issues before the due diligence phase. A buyer will also want to have a firm understanding of everything that is included in the sale.
Put yourself in the buyer’s shoes. Consider what you would want to see if you were buying the business. Anything that you can do in advance to improve your workforce, equipment, premises, and financial records is highly recommended. The goal is to have a smooth transition for the buyer. The team at EBIT can help guide you through the process.