Sell
Your Business Tips, Hints & Techniques:
Enter
your name & e-mail address below and each week I'll send you
detailed tips, facts, resources & ideas you can use right
away to help sell your business faster and for more money.
Step
5 - Conduct Due Diligence
How
To Conduct Due Diligence
On The Buyer
Due
Diligence is a two way street.
While
the term is normally associated with the buyer checking you
out, you will definitely want to research the buyer's background
and qualifications as well.
Although
the investigation the buyer performs will take place within
a well defined window of time, the due diligence you
perform on the buyer should be an ongoing process that begins
as soon as you first talk with them.
Below
are 5 different sources of information you can use to assess
the buyer.
The
first three should be done early on in the selling process
because you want to know up front if the buyer is qualified
to buy and prepared to successfully run the business.
1.)
Buyer's Financial Statements:
You can tell a lot about a buyer by how prepared and willing
they are to prove they are a qualified buyer. Because you have
much confidential information that you only want to share
with the most qualified buyers, the buyer's up-to-date
financial statements should be provided at the very start along
with their signed confidentiality agreement.
Even
if you are not financing any part of the sale, you will be investing
a lot of time and sharing a lot of personal information,
so you should require a financial statement up front.
2.)
Buyer's Credit History: You can check the buyers personal
credit history with any or all of the three leading nation credit
reporting agencies. You will need the buyer's full name, social
security number and current address.
If
the buyer's financial statements are impressive and he strikes
you as a quality candidate you may want to delay the credit
check. It will cost you money each time you request a
report from one of the credit agencies. Also, too many inquiries
on a person's credit report will lower their credit score.
So
for the benefit of you and the buyer you may want to
wait until the buyer has read you Selling
Memorandum. Some prospects may not be interested after they
read your memorandum so you save yourself some time and money
if you wait until the buyer has expressed some serious interest
in your business.
But
certainly, before you accept the buyer's Letter Of Intent, you
should check his credit reports.
3.)
Buyer's Resume: As we stated in the Follow
Up To The Selling Memorandum section, you shouldn't
be afraid to interview buyers as you would if you were hiring
an employee. Experienced and qualified businesspeople will understand
your need to qualify them and they will have usually
already taken the time to write a resume complete with references.
If they don't present you with one up front, it's appropriate
for you to ask for one.
4.)
Buyer's Business Plan: At the very least, the buyer should
be able to explain to you how they plan to run the business
and what they plan to do in order to grow the business. Given
the fact that many businesses experience a decrease in
sales immediately after a sale, the buyer should be able to
explain how they plan to make payments to you in those first
few months.
They
may or may not take the time to put together a formal
business plan but if they do, it can be a great tool for you
to asses their chances of success with your business.
An
overly optimistic or naive plan will tell you a lot about the
buyers chances of success.
5.)
Third Party Input: If you have any doubts at all about the
buyer's abilities and/or ethics at this point you should
gather as much information as you can from third parties.
This
could included talking to any people who have had business dealings
with the buyer in the past. Especially if the buyer has been
dropping the names of well known business people or political
leaders from the area. You should talk to these people to verify
the buyer's stories or any claims of great success.
If
your business requires certain licenses, you should check
with the appropriate state licensing agencies for any information
they have on the buyer. They should be able to tell you if the
buyer has any complaints from consumers or has ever been disciplined
by the agency.
Lastly
you can check court records in your county to see if the buyer
has been sued as a result of any of his previous business
dealing. Also, don't discount the importance of the buyer
being the initiator of any lawsuits. If your buyer has a history
of suing others over minor business disputes you could be next.
Sell
Your Business Tips, Hints & Techniques:
Enter
your name & e-mail address below and each week I'll send
you detailed tips, facts, resources & ideas you can use
right away to help sell your business faster and for more money.
