- September 17, 2024
- Posted by: Business Brokers & Consultants
- Category: Seller Articles
Conducting your own thorough due diligence before bringing your business to market is crucial for a smooth and successful exit. Here are six key areas that prospective buyers are likely to scrutinize.
- Legal
- Marketing
- Environmental
- Operational
- Management
- Employees
It is best to make a habit of including each area in your annual SWOT analysis. Doing so will improve your business from an operational standpoint and have it ready for market when the time comes to sell. You can expect any savvy buyer to focus these areas during due diligence. A problem in any of them could spell serious trouble in the sales process.
Legal Issues
First, Verify that your business complies with all relevant laws and regulations. You’ll want to carefully evaluate whether or not your contracts and agreements are all current. Buyers will need to examine contracts, leases, intellectual property rights, copyrights, trademarks, and patents. If there is any pending litigation it’s best to resolve the matter as soon as reasonably possible. Think about what your own lawyer or legal team would want to see out of a business before recommending that you ink a deal. Obviously, these types of legal issues should not and will not simply be overlooked.
Marketing Issues
Marketing issues should be considered as well. Buyers place tremendous value on your industry experience as well as your market share and customer lists. They will want to see evidence of a loyal customer base, market demand, and growth potential. When you provide detailed customer data and market research it adds a great deal of value to your business, but you need to put systems in place to gather those metrics.
The goal is to be able to answer the following questions:
- Who are the industry leaders?
- What are your Company’s top selling products or services?
- Who are your current and future customers?
- What are the best ways of reaching new customers?
- What are the upsides and risks of your products or services?
You should demonstrate to a prospective buyer that you understand the “lay of the land.” You should be able to convey a strong grasp of how the business is currently positioned and how it may be positioned in the future.
Environmental Issues
Prospective buyers and lenders are always wary of potential environmental issues, and one serious environmental issue can derail a deal. Identifying and addressing environmental issues before you bring the business to market should be a priority as you prepare for due diligence.
Operational Issues
Operations are another key area. The way goods and services are delivered to your customers should be clearly defined. Buyers are looking for efficiency, and so should you. Review standard operating procedures, supply chain management, and employee performance every year. Streamline operations, employ and document effective management practices. Your bottom line with thank you and it will make your business much more attractive to future buyers.
Financial Issues
Buyers will meticulously review your financial statements, including profit and loss statements, balance sheets, payroll records, and Tax Returns. Make sure they all line-up and present a consistent and a clear picture of revenue, expenses and profitability. Keeping accurate financial records that reflect the true performance of your business is the most important thing you can do to prepare for due diligence. Everything from your inventory and supply chain to your accounts receivable and accounts payable should be well laid out, accessible and easy to understand.
Employees and Management
Problems with employees or management can spell doom for any company. You’ll want to take steps to uncover any potential issues in these areas well before selling. Loyal employees, who love what they do are one of the greatest assets of any business.
Working to uncover problems and address them in these six key areas will help keep your business running smoothly and postured for a successful sale. While you might not plan on selling today, or even tomorrow, there is no way to know what the future may bring. It’s best to be prepared.
Copyright: Pamela Florence, Business Brokers & Consultants, Inc
This article is based on the post 6 Critically Important Aspects of Due Diligence, which appeared on Deal Studio – Automate, accelerate and elevate your deal making.