We’ve been looking at how you, as a business owner wanting to sell your business, can be sure the sell-side due diligence process is handled thoroughly and effectively. Your goal is to uncover and proactively present information about your business to prospective buyers that will convince them your company is financially sound and poised for growth as the economy recovers from the recent recession.
Why do you want to do this? Because if a buyer has a high level of confidence in you as a seller, you will be in a better position to negotiate a profitable sale when you get to the bargaining table. In this post I want to mention a few other issues you don’t want to ignore when doing sell-side due diligence. (See my previous post for the first three issues.)
4. Discovering problems early gives you the opportunity to fix them. Selling your business is the one time when being an “ostrich” and sticking your head in the sand will backfire on you. Don’t let the fear of what you might uncover in the sell-side due diligence process stop you from plunging into the process as early as possible. As soon as you begin considering selling your business, go ahead and pull together a strong professional Exit Planning team, and get them to work. There have been many times in my 20-plus years of helping business owners plan their exit when problems that eventually proved to be deal breakers could have been fixed – if the discovery process had started months sooner.
5. Positively position any potential problems before the buyer finds them. Almost no business that has survived the recent downturn can avoid potentially negative issues. Whether it’s a loss in customer base, devaluation of the physical plant, compromised cash flow, or a few diminshed quarterly profit reports, you’re likely to uncover something in your due diligence that you would rather not reveal to a buyer. However, it’s even worse if they find the negative information on their own. Your Exit Planning advisor can help you present just about any situation in a positive light, and you’ll go into negotiations knowing you gained credibility by being proactive with the buyer.
6. Don’t neglect tax issues. With a knowledgeable professional on your team, the process of sell-side due diligence can position both you and the buyer positively when it comes to taxes. Right now, especially, this should be a key area of focus, since the capital gains tax rate is due to increase substantially at the end of this year. The timing and structure of the sale of your business can potentially add millions of dollars to the deal not only for you, but for the buyer. If you can show this to the buyer up front, you’ll be head and shoulders above the competition when it comes to convincing investors to buy your business.
The bottom line is: Sell-side due diligence is one of the most important ways you can maximize your returns from the sale of your business. And you can start the process with your Exit Planning team right now.
