Sell
Your Business Tips, Hints & Techniques:
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detailed tips, facts, resources & ideas you can use right
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Step
5 - Conduct Due Diligence
Due
Diligence Process:
Handling Issues That Arise
Previously,
we talked about all the material you should be ready to provide
the buyer during the due diligence process.
Of
course buyers don't examine all this material expecting that
things are better than you had said. They will assume
there are at least some things that are not as good as you have
represented and they will be seeking them out.
Accounts
Receivable And Inventory
These areas are often a point of contention during due diligence
for for two reasons. The value you placed on your business,
and the asking price you set, were directly affected
by how you valued your inventory and accounts receivable.
And
the second reason is that their exact value has probably changed
since you appraised your business.
If
you haven't been as aggressive with customers who pay
late you may find that the percentage of accounts receivable
that are more than 90 days past due has gone up.
If
you have tried to cut corners by carrying less inventory the
buyer may want the selling price adjusted down. The buyer's
due diligence may uncover the fact that your inventory
now consists of more old or discontinued items than it did months
ago when you last appraised it's value.
If
you are a manufacturer, you may find that the distribution in
your inventory has shifted to more raw materials or works
in progress and less finished goods that are ready to be sold
and shipped.
These
are common issues and shouldn't kill a deal or
raise suspicions within the buyer. Some adjustment of the price
may be reasonable.
Be
prepared to deal with the buyer's feedback on these issues.
If you have been honest and forthright with the buyer up to
this point, there is no reason why you can't work out
an agreement if in fact the value of you inventory or accounts
receivable have changed significantly in the months since you
first placed a value on your business.
Red Flags Buyers Look For
If
your business is struggling with some of the issues listed below
and you haven't yet put your business on the market, you should
consider delaying the sale so you can clear these things
up.
If
your business is on the market and you are already dealing with
buyers, then you should be honest about the issues facing the
business and do all you can to correct them as soon
as possible.
If
you are being sued by a customer, audited by the IRS or your
equipment is falling apart due to neglect the buyer will find
out.
Have
a game plan ready to fix and/or explain these issues.
While you may need to adjust the price slightly for changes
in your inventory or accounts receivable, the issues below will
likely kill any deal if the seller has attempted to hide
them.
Litigation:Any
recent or pending litigation can be an issue but especially
if it is related to product liability.
Tax
Problems:
Are all taxes up to date including unemployment and federal
withholding taxes? Is the business being audited?
Environmental
Issues:
The buyer may be liable for environmental cleanups even if the
problem existed before they bought. And this isn't just a problem
for large manufacturer but also for many small businesses such
as gas stations and dry cleaners.
Unrecorded
Liabilities:
Depending on the size of your workforce this could be a major
concern for the buyer. Do you owe your employees a lot of accrued
vacation time? Are there any unfunded health care and/or pension
liabilities for retirees?
Deferred
Maintenance:
If you have tried to lower your costs by delaying or skipping
needed maintenance on vehicles and equipment now could be the
time it catches up with you. The buyer will also want to confirm
that the age and overall quality of the equipment is the same
as you stated.
A
lot of this is common sense, be honest with the buyer throughout
the process and the due diligence period should not be much
of an issue.
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.
Next:
How
And Why You Should Check Out The Buyer
