Is Your Business Transaction Truly Complete?
When you’re at a point in your business transaction where a letter of intent is duly signed, you may start feeling a sigh of relief that the deal is nearing its conclusion. But it’s critical to remember that this is often when the due diligence phase begins. This process entails thorough financial and legal examinations, as well as a review of specific details about the business’s operations.
The due diligence process can be quite exhaustive and may unearth unexpected findings. To prepare sellers for this phase and inform buyers about what to scrutinize, let’s delve into the categories typically assessed during this stage.
Intellectual Property
Will assets such as trademarks, patents, and copyrights be transferred in the deal? It’s a question that has thrown a wrench in many deals. Since these intangible assets are often vital components of a business, they must not be overlooked.
Product Lines and Industry
The due diligence phase will likely involve a detailed analysis of product lines and their respective sales contributions. If the business in question is a manufacturing entity, every aspect of the manufacturing process will be examined. Buyers will seek information about the age and value of the equipment, supplier details, and more.
Financial Statements
It’s a given that financial statements will be rigorously scrutinized during due diligence. Current financials and projected sales should be meticulously reviewed. Assessment of financial health will also involve a careful look at balance sheets. Are there bad debts? Is there any work in progress? These and similar issues will be evaluated.
Customer Lists
As a seller, you should be ready to disclose lists of major customers. Buyers may also be interested in comparing your market share with that of your competitors.
Key Personnel
Information about key personnel and potential employee turnover data are of high interest to buyers. If you’re selling a business, it’s crucial to address any staffing issues that could impede the buyer’s ability to efficiently operate the business.
The ultimate aim of the due diligence process is to identify potential problems, including liabilities and contractual concerns. However, on the brighter side, due diligence also uncovers assets and advantages. The outcome should be a justified selling price for the business, leaving both parties contented. As mentioned earlier, it’s not uncommon for issues to surface during due diligence, so staying proactive and open to negotiations until the deal is officially closed is paramount.
