Due Diligence is defined by the Business Dictionary as follows:
- General: Measure of prudence, responsibility, and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.
- Business: Duty of a firm's directors and officers to act prudently in evaluating associated risks in all transactions.
- Investing: Duty of the investor to gather necessary information on actual or potential risks involved in an investment.
- Negotiating: Duty of each party to confirm each other's expectations and understandings, and to independently verify the abilities of the other to fulfill the conditions and requirements of the agreement.
Read more: http://www.businessdictionary.com/definition/due-diligence.html
What does this mean to you as a business owner looking to sell your business?
This means you need to take a close look at your business as if you were a buyer. Whether your business is a thriving multi-million dollar business or a small restaurant buyers are always weary of what lurks in the shadows. This means you need to clear up any potential issues or questions BEFORE they arise which can take a year or more depending on your business type and size. It is never too soon to start the process of selling your business by contacting a business broker to guide you through the process of positioning your business for sale.
- Make sure your books and records are clear and easy to understand. Buyers understand you seek write-offs each year but are they easy to see and understand?
- How does your A/P and A/R aging report look? Buyers can become uneasy if your clients are slow to pay or no pay.
- Is the ownership of your business clear? Are there “undisclosed partners”? If so, clean up the legal ownership of your business.
- Does your business have agreements in place that are outdated either with customers or vendors? If so, now is a great time to get those cleaned up creating good valid contracts in place which is always appealing to buyers.
- Do you have a great staff in place but really haven’t clearly defined what they do for your business? This doesn’t have to be a complicated process, simply who they are, what their title is, what their duties are and how/what they are paid will make your business appear more organized to qualified buyers. Your First Choice Business Broker will use a simple employee questionnaire format to help you gather and present this valuable information without breaking confidentiality.
- Have all the active owners decided what roles they will take in the training process of a buyer?
- Are your government accounts with taxation and department of employment up to date? Are you prepared for an audit if one is required?
- Do you have any lingering litigation issues? You may feel these issues are frivolous and/or not worth mentioning however buyers and their potential lenders will want to see these issues resolved.
- Is your licensing and corporation in good standing with your state and local officials? It is easy to check and remedy if needed.
- If you have created a business plan and just never had time, money or energy to implement the plan a buyer may see value in that plan. Memorialize your plan and consider providing the plan in generalities to buyers upfront and in depth during due diligence, you might just see the plan pay off even if it isn’t you implementing it.