How to prepare for due diligence ahead of your exit

If you’re planning to exit your business by selling it to a third party, due diligence is one of the most challenging and lengthy stages of the process.

Chris Hird discusses the key steps to take to prepare for due diligence.

Think of due diligence as a commercial audit of your business. And when it comes to selling up, your buyer will have 101 questions about how your organisation works. Stepping into the shoes of the buyer and being able to anticipate what some of these questions might be will help the process to run a lot more smoothly.

Here are some key considerations on how your buyer impacts your due diligence process preparing your business ahead of the process.

What are buyers looking for?

Viewing your business from a buyer’s perspective can be a great way to prepare for due diligence. It can help you to prepare in advance and make any changes needed to your business ahead of due diligence.

It’s worth starting by asking yourself what would you be looking for in a business that you were looking to buy.

• Synergies within existing operations and strategy
  Buyers will likely want to see that your business’ operations, strategy, and values are in line with their own.
• Potential to reach new customers
  Being able to reach new customers and geographical locations will also be important to potential buyers. This will demonstrate the possibilities for future growth.
• Complementary services
  Buyers will often look for businesses who offer products or services which complement their own, does your business offer any services or products that will add value to their existing customers?
• A good spread of customers and suppliers
  Have you clearly defined who your customers are? And are you able to prove that you have a good range of suppliers?

Addressing these factors with buyers shows that you are running your business efficiently and that it is in good condition for future growth.

How can you prepare your business?

When it comes to the actual due diligence process, preparation is key. There’s no denying that it can be a drawn-out process. Planning ahead will allow enable you to solve any problems ahead of time. Allowing for a smoother process and ensuring that your time isn’t put under too much constraint.

Using the above considerations, again, think about what the buyer may ask to see. If you can anticipate what the buyer wants, you can make sure you have all your information at hand and that your house in order before the process gets underway.

Some key components of your business that a buyer might want to dig into could include, but aren’t limited to:

• Your filing history - Company tax returns, accounts, and confirmation statements all need to be filed and up to date. Make sure that any disputes are resolved before the due diligence process is important. Buyers won’t want to be lumped with liability post-sale.
• Your contracts – Whether it’s your employee, supplier, customer, or property, make sure you have reviewed all of your contracts. It’s easy to make verbal agreements as time goes by, but you’ll need everything in writing. Property and lease agreements in particular cause problems during the sale process.
• The Quality of your back office
  The quality of internal records is a big factor. Keep the administrative burden to a minimum for a higher valuation.
• Litigation, creditors and debtors
  You need to be able to demonstrate that your business is as risk-free as possible. Make sure all litigation, legal claims, creditors and debtors are dealt with.
• Customer Relationship Management (CRM)
  Whether you use a fully-fledged digital CRM or a traditional filing cabinet, make sure your CRM data is cleansed and up to date.

Advising you on your next steps

Whether you’re at the very beginning of your exit planning process, or you are gearing up towards due diligence, our advisors are on hand to help you navigate your exit plan with ease.

Our team of experts have crafted an extensive guide to successful exit planning strategy. Find out more and begin your exit planning journey today.