How
To Sell My Business - 6 Simple Steps To Sell Any Business
Step
1 - Preparation Step
2 - Valuation Step
3 - Finding Buyers
Step 4 - Structure The Sale Step
5 - Due Diligence Step
6 - Closing
Step
5 - Due Diligence
Definition:
The term "due diligence" refers to the period during which
the buyer has the opportunity to investigate the business completely.
The buyer can fully research the company's financial statements,
inventory, contracts etc. in order to confirm all the claims
made by the owner during the selling process.
While
the idea of giving an outsider unlimited access to your business
may sound scary it it actually standard operating procedure
when it comes to selling a small business.
Remember
you will only go through this process with a buyer who is qualified,
committed and has agreed in writing (The Letter Of Intent) to
a certain price and terms.
Unless
you have been hiding negative information from the buyer, this
part of the process should be quite manageable.
The
key is to be organized and prepared.
Here
is a Due
Diligence Checklist with many of the items the buyer
will want to see.
While
conducting their due diligence, the buyer will be on the lookout
for red flags or trouble spots. Here is a list of the major
Trouble
Spots The Buyer Will Be Looking For during their research
and how to prepare for them.
Key
Points To Keep In Mind During The Process
Continue
To Maintain Confidentiality: If for some reason the deal
falls through at this late stage, the prospect will still poss
any intimate knowledge he learned about your trade secrets and
other internal matter pertaining to your business. So continued
to make confidentiality a priority.
*Remind
the buyer that the Confidentiality Agreement he signed still
applies.
*Keep
a log of each document you provide the buyer and confirm that
it has been returned.
*Require
that any examination of the information you provide be conducted
on your premises.
Conduct
Business As Usual:
This is advice
that should be followed throughout the selling process but especially
during due diligence. If you get sloppy with your management
of the business it can only hurt your bargaining power. Also,
a sudden loss of interest in the day to day operation of the
business by the owner is often detected by the employees and
can effect their productivity.
Manage
The Buyer's Contact With Customers:
If at all possible, try to answer any questions about customers
yourself. You can't stop the seller from contacting customers
on his own but it's usually not a good idea to volunteer to
introduce the buyer to customers until after the deal is closed.
There usually isn't any new positive information the customer
will provide to the seller and it's possible that they may air
some complaints.
Manage
The Buyer's Contact With Employees:
Especially
with very key or long term employees, it is almost impossible
to close the deal without the buyer talking to the employees.
It most cases though it is best if you request that the buyer
interview employees only after completing all the other steps
in the due diligence process.
Continue
To Negotiate Effectively: Be prepared for the fact that
you will still have some things to negotiate during and after
the due diligence phase. While the price and terms have been
agreed to in writing, things may still come up once the buyer
has begun his due diligence.
Much
of the negotiating will center on the exact wording of the purchase
contract and even though it is the buyer's attorney who usually
draws up the actual contract, you and your attorney will want
to have some say over how things are worded.
Conduct
You Own Background Check On The Buyer: Lastly, this process
is a two way street and you should conduct your own investigation
of the buyer. So we finish up this section with a discussion
of How And Why You Should Conduct
Due Diligence On The Buyer.
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:
Due
Diligence Checklist
