What to expect during Due Diligence

June 26, 2014

Selling your business

One of the first things a prospective buyer sees is the Business Listing Information sheet, or BLI. The BLI provides the buyer a wealth of data on the business of interest. The business owner has certified all data on the BLI is correct and supported by financial documents, leases, and other pertinent information. At this point in time, a buyer should assume that the information provided is accurate, but there are no guarantees. Sellers should expect buyers to thoroughly inspect the business. This is called “due diligence”. Usually, before due diligence, an offer must be submitted and price and terms agreed. Most offers are subject to the buyer’s satisfactory performance of ”due diligence”.

The Due Diligence process is the opportunity for the buyer to inspect all records of the business and verify that the information provided is correct.

The broker will arrange and attend meetings with the buyer and seller to review and discuss items of concern. The seller, buyer and broker understand those items need to be answered, or mitigated and all will collaborate to reach the best possible solution. If the buyer’s confidence level has not been satisfied, they may ask for further clarification, modify or withdraw their offer.

Due Diligence brings a balance to the process. We ask in the beginning that the buyer accept the information as represented. Later during the due diligence process the buyer can perform an exhaustive investigation to confirm that everything is as it should be.

The process may vary with the size of the business
 

Large businesses, e.g., Fortune 500, companies normally have only a handful of suitors that are qualified to buy them. Buyers are provided a prospectus and audited financial statements and they expect to complete due diligence prior to issuing a letter of intent. Large firms usually have teams of accounts & lawyers on staff to conduct the due diligence.

Small Business are very different. A seller must not approach a small business as if it were a fortune 500 Company. Small businesses often employ only a bookkeeper and sometimes the financial records are kept by the owners themselves. A CPA or Accountant may only be involved at tax time.

So what would happen to a small businesses when 30 to 100 unqualified buyers want to see financial records and perform due diligence in advance of an offer being presented? You can imagine how daunting and time consuming it would be for a seller to meet with each potential buyer and agree to their demands!

Quorum Business Advisors, LLC can help initiate a quick, easy and successful sale. We will qualify potential buyers to ensure sellers only meet with serious buyers who have the experience and finances to succeed. In addition, we assist buyers and sellers through due diligence once an offer is accepted. This affords the seller time to do what they do best – run their business.


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