Ready to Sell? Here’s a Practical Checklist for Confident Sellers
Selling your business is about more than just connecting with the right buyer. The negotiation and due diligence phase can be stressful for sellers, and if a buyer encounters anything they see as a red flag, the deal may fall through.
When you understand how to prepare for the due diligence process, would-be buyers are more likely to see your company as a sound investment. Take a closer look at what buyers are watching for and learn how to prepare a high-quality due diligence package.
What Buyers Scrutinize Before Purchase
During the due diligence phase of a sale, a buyer will take a deep dive into your company. They’ll want to verify the accuracy of any information they’ve received about your business, and they’ll also want to get a clear picture of the company’s strengths and potential risks.
Due diligence can be extensive and exhausting, but it’s important to be aware of some of the most important things buyers scrutinize:
Financial and Tax Records
This is one of the most important parts of the due diligence process. Buyers typically review the company’s revenue, balance sheets, and overall profitability for at least the past three years. They also need to verify that your company is tax-compliant.
Intellectual Property Rights
Buyers will usually want to look at your company’s intellectual property rights. Specifically, they will probably take steps to verify that patents, copyrights, and trademarks are current.
Operational Efficiency
Before purchasing a company, a buyer needs to understand its day-to-day operations. They may look at current employees, inventory, and the strength of the supply chain. If the buyer intends to grow the business, they may try to determine whether it’s ready to scale.
Human Resources
Your company’s employees are an indispensable part of your business. A buyer will want to review turnover rates, employment contracts, and overall employee satisfaction.
Market Analysis
A responsible buyer will want to see how your company fits into the current market landscape. They may also look at your customer base to verify that your company has long-term growth potential.
Assembling Your Due Diligence Package
Before due diligence begins, you should gather important documents. The exact documents you need will depend on your circumstances, but these are some common examples:
- Cash flow statements, balance sheets, and profit and loss statements
- A comprehensive list of loans and other debts
- Tax returns from the past several years
- Supplier agreements
- Lists of employees and job descriptions
- A list of all inventory and other assets
- Regulatory compliance reports
- Details on all insurance policies
When you’re selling your business, preparing for due diligence involves more than gathering necessary documents. You also need to consider how you’ll present them to potential buyers.
A business broker can offer valuable guidance during this process. For instance, our team uses secure data rooms to protect sensitive data while still making it easy for buyers to access. When the due diligence process is streamlined and snag-free, deals are less likely to fall through.
Selling Your Business? Be Proactive to Reduce Surprises
If you want to get the most out of your business sale, planning ahead is critical. Even seemingly straightforward deals can fall apart at the last minute, but when you’re a proactive seller, you’ll be better equipped to spot potential problems early on.
One of the most important ways you can be proactive is by hiring a business broker. The Sunbelt Business Brokers team is dedicated to guiding owners of small and medium businesses through the sales process. Start with a free online business valuation using our calculator, or get in touch to speak with a broker today.