Due Diligence (Part 2): 6 Ways To Make It Successful

Many sellers report that the due diligence period is the most difficult part of the transaction for them.  Potential buyers ask for volumes of information that may seem irrelevant.  Different buyers may ask for different types of data.  Sellers may have to gather much of the information themselves because they want to keep a potential transaction as confidential as possible.  And the seller may have many other operational obligations that make the due diligence task enormous.

Here are ways you (the seller) can make the process more sane and successful:

  1. Begin the preparation of necessary documents for the listing and marketing process as early as possible. It usually takes some time to gather everything you will need.
  2. Prepare all financial and other related documents in an accessible, digital format, such as an Excel spreadsheet.  This makes it easier for the potential buyer to understand your data, which is a good thing if you want them to see your full value.
  3. Check your information thoroughly for accuracy and then check it again.  Buyers need to be assured of both your competence and integrity, and simple, unintentional errors can be misinterpreted.
  4. Keep your records up to date, as buyers will always ask for the most recent information.  Six-month old data will often be acceptable.
  5. Have a trusted advisor from the outside review your detailed company information, at least from a macro level.  This will help you to be prepared for the buyer’s perspective, which often entails an emotional and marketplace adjustment.
  6. Be honest.  You can always market the company and its potential creatively, but present data, especially financials, as accurately as possible.

A theme that runs through these guidelines is preparation.  The better prepared you are for due diligence and related questions, the better the process usually unfolds.  The side benefits are less anxiety and wasted energy for you, as well as a positive impression of your business for the buyer.  The latter won’t hurt you and it can positively affect your sales price.