In this article we review some of the categories reviewed during due diligence. 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 stage is typically yet to come. This stage includes everything from auditing financial records to a review of specific information regarding how a business is run.
The due diligence process can be quite comprehensive and it often reveals some surprises. Let’s examine some of the categories reviewed during due diligence.
Financial statement should be looked over closely during due diligence. Current statements and incoming sales should be reviewed. Review of financial information will also include balance sheets. Is there work in progress? Is there bad debt? Buyers evaluate these kinds of issues.
Products and Industry
Due diligence will likely include analysis of product lines and the respective percentage of sales that they make up. If a seller is selling a manufacturing company, then 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.
Trademarks and Copyrights
Will assets like trademarks, patents and copyrights be transferred? This is a topic that has definitely interfered with some deals being successful. You cannot overlook trademarks, patents, and copyrights due to the fact that they are often essential parts of a business.
Prepare to share lists of major customer if you are selling a business. Buyers may also want to compare your market share to that of your competitors.
Buyers will be looking for information on key personnel, as well as data on any potential employee turnover. If you are selling a business, it is important to fix any staffing problems that might interfere with a buyer’s ability to properly run the business.
A key goal of the due diligence process is to find potential problems, such as liabilities and contractual issues. Due diligence also includes investigation into assets and benefits. The end result should be that the selling price of the business is justified and both parties walk away satisfied. It is very common for problems and issues to pop up during due diligence. It is important to stay proactive and be open to negotiation until the deal is finalized.