How To Be Prepared For A Buyer’s Due Diligence
Getting Ready For a Due Diligence When Selling Your Business
If you are preparing to sell your business, you’ll hear a lot about “due diligence.” In essence, this refers to the efforts that a potential buyer utilizes to research a business he or she is considering purchasing. This can include:
- Confirming what the seller has stated about the business, including its assets, annual income, financial situation, contracts, and much more
- Determine whether there are any undisclosed problems, liabilities, compliance issues, or potential complications
- Analyze whether the business is likely to provide the amount of return the buyer needs
In order to promote a smooth sale and the maximum selling price, a business owner and their Chandler business broker will anticipate a potential buyer’s due diligence requests and will do as much as they can to gather this information before the business becomes available for sale.
There are many ways to be prepared for a buyer’s due diligence when you are selling a business.
Gather Basic Documentation
Collect and organize the information your buyer will need to evaluate your business adequately. This includes:
- 3-5 years of tax returns
- 3-5 years of financial statements
- Year-to-date financial statements
- 12 months of bank statements
- Copies of any leases that your business holds for real estate, facilities, equipment, etc.
- Copies of any contracts that your business holds, including vendors, clients, employees, subcontractors, etc.
- Documentation of any loans that the business owes
- Accounts payable and accounts receivable aging reports
- Current amount of inventory at cost
Additional information or data will depend on the type of business you are selling. Consult with your Glendale business broker about what information is best to provide for a business in your industry.
Gather Legal Information
A carefully organized legal profile is essential for a successful transaction free of unexpected complications. Place all legal documentation in the same folder:
- Business structure documentation
- Shareholder agreements
- Operating agreements
- Licensure information, including the business license and any specialized licensure
- Information regarding intellectual property rights, such as trademarks, recipes, and patents
- Third-party financing agreements
- Authorization to sell
Having this information ready will make selling your Phoenix business much easier.
Identify Your Business Assets
Put together a list of all of the business’s assets, that are included in the sale. Most buyers will expect to receive all of your assets free and clear of any liens or encumbrances at the closing. If you owe money on any of your assets, you will need to get the payoff amounts before the closing. The escrow company can pay off these debts out of the proceeds of the sale.
Put Your Facility In Order
Cleaning up your business space helps your potential buyers feel that your business is well-managed and organized, and can even increase its potential value, so be sure that your working space is clean, in good order, and OSHA compliant. This is a good time to make sure you have a copy of your space lease or ownership records.
Cleaning Up the Books
Cleaning up your books is essential before selling your business. This includes checking your account balances, verifying financial information, and ensuring your business tax returns were filed properly. Although this work may seem tedious, it’s worthwhile. Disorganized financials are one of the most common reasons why business sales fall apart. Ask your Scottsdale business broker for professional recommendations if you need assistance getting your financials in order before listing your business for sale.
How To Prepare For Your Buyer’s Due Diligence
Any buyer will want to ensure that the business they are looking to purchase will be worth their time, effort, and expense. Although the examination of your financial records, contracts, and other private documentation may feel intrusive, it’s crucial for a successful sale. As you prepare to sell your Tempe business, ask yourself, what information would you want to see if you were purchasing the business? That can be one of the best ways to ensure that you provide the necessary information for your potential buyers.
Due diligence can be time-consuming, especially if you do not have the data on hand when a potential buyer asks for it. It’s ideal to have as much of the information as possible available, organized, and up-to-date before you begin working with an Arizona-certified business intermediary. This will promote a smoother sale with a higher sales price and fewer surprises along the way.
Get The Professional Representation You Need For A Successful Business Sale
When you work with Phil Reese, an Arizona business broker, you can feel confident that you will be receiving the highest quality representation from someone who has over two decades of experience and knows the industry inside and out. Maximize your sales price and promote a smooth business sale when you work with a certified business intermediary who can answer all your questions. Phil Reese is the #1 business broker in Arizona and will keep you informed throughout the entire sales process. If you’re ready to sell your business in Phoenix, contact us today to learn more!
Written By: Phil Reese
Phil Reese – Arizona Business Broker
7077 E. Marilyn Road, Bldg. 4 Suite 200
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