Sales Process Step 8: Due Diligence
The offer is usually contingent upon the buyer's professionals verifying the accuracy of the seller's financial and operational representations. The buyer begins the process of due diligence and inspects detailed accounting records and business information. The due diligence process is the most important step in ensuring that the transaction is completed in a successful manner.
Although the due diligence period tends to have a fairly well defined beginning and an end during which the buyer will accomplish the bulk of due diligence, the buyer actually starts some semblance of the process the day a possible purchase of the business is considered. The formal period of due diligence usually begins during the time frame between when a Letter of Intent is agreed to and when an actual Purchase and Sale Agreement is signed. It's during this time frame that you will be required to "open the books" and cooperate with the buyer and the buyer's representatives in every reasonable way to satisfy their need to validate your business claims. Our professionals will facilitate the due diligence process to ensure that this step is completed successfully.
Whether the deal is structured as an asset transaction, a stock transaction or a merger, the buyer will likely want to review detailed information from the seller regarding the business operations and finances. Although there are numerous specific areas of interest the buyer might want to consider as part of the due diligence process, the procedures employed are typically organized into these four categories:
- Examination and Review
- Interviews and Discussion
- Confirmation, Verification, and Validation
- Calculations, Computations, and Analysis
Realize that just as all businesses are unique, the actual due diligence process will likewise be somewhat unique. No checklist or guide will substitute for the buyer's own common sense in attempting to fully understand the nature and makeup of the business for sale. Most buyers will approach each situation with a healthy sense of skepticism.
