Navigating the due diligence process when selling your business
Nothing in this world should be feared – only understood. This particularly applies to a Buyer’s Due Diligence.
Selling the business is meant to be the pinnacle of an entrepreneur’s journey – but often the face of the seller at the end of a process can be one of shell-shock and exhaustion. The term “deal fatigue” is commonly used when the excitement of a deal is sapped out and replaced with frustration and despair at the relentlessness of the diligence process and the countless faceless advisors who delight in bombarding the seller with a blizzard of questions ranging from the most inconsequential to the bizarre. There is no question that diligence can be a miserable experience, but usually that results largely from being ill prepared or failing to appreciating its objective. When selling your home, it is well understood that the buyer will want to have the property surveyed by an expert who will both look for signs of dilapidation or concerns and provide a valuation that can be used to support the required funding. It is readily accepted by the seller that this is a necessary part of the process. At its most basic, diligence to your business seeks to fulfil much the same objectives. It seeks to understand the business, its past, present and expected future, seeking to identify any risks that may exist, in support of the business valuation for both to the buyer’s board and sometimes also to the financing banks. Perhaps the difference with the above analogy is not with its objective but the difference in the breadth of scope of its remit. Companies unlike houses are fundamentally complex beasts. From the moment they are incorporated they wade through multitude of commercial, contractual, fiscal and legal obligations and exposures, and have to deal with the most emotional of creatures - employees. In this increasingly litigious world, it is perhaps understandable that a buyer will want to assess the risks which he will be taking on, particularly since he will be likely viewed as being a target with deeper pockets than the seller for any existing or future aggrieved party.