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More Useful Questions to Ask Before Due Diligence

     

Last month, we discussed some of the things that companies seeking to sell should think about before pulling the trigger on that decision. Now, that was just a short list of some big picture items to take into consideration. The truth is that no matter how much a company plans and prepares, it may never be fully ready for the intricacies of a due diligence investigation. Nonetheless, it would be completely foolish to enter due diligence without having first conducted your own due diligence. Here are some more questions to ponder before committing to taking the next steps:


Do we know who our potential buyers are and what they will expect?

A lot of companies probably intend to sell their businesses in the future with the hope of earning some serious cash when it happens. But, intending to do something and actually seeing it through to fruition are two very different things. One of the initial analyses that should be made is determining whether there are even prospective buyers. Just because you think your company is amazing and has the potential to be even more so does not mean that others will agree. And, even if there is massive demand for what you are doing and/or the profits are soaring, that does not mean that another entity will want to take on the work and cost associated with expanding. Therefore, company leaders need to do substantial research to identify realistic prospects and figure out what it is that those potential buyers will want to know about the company.


Do we have the right things prepared?

Either before or as the company is researching the market and potential buyers, it will also be important to look at the inner workings of the business to ensure that it really is ready for a possible sale. In addition to ensuring that operations are running smoothly, the leadership will need to review the corporate records and other critical documentation to ensure that all important items exist and are up to date. In some cases, it may make sense to have an external professional take a look at things to conduct a kind of mini audit. After all, the company may engage in meticulous record keeping, but there could be some key information that is missing, and individuals familiar with this aspect are better equipped to make that determination.


Do we have any outstanding issues to address?

The whole point of due diligence is to scrutinize a company so that the buyers understand all of the ins and outs of the business. No one wants to buy a company that is going to bring along a whole host of problems with it. For this reason, prior to selling, companies will need to take a look at any outstanding issues, such as compliance matters, pending litigation, or employee lawsuits. There can be all sorts of seemingly trivial matters that become major hiccoughs during negotiations. And, this is another realm that may be best left to a team of experts, especially corporate counsel.


Do we have the resources to operate and handle a due diligence investigation?

In general, a company that is approaching a sale is a well-oiled machine that is generating some rather handsome profits. But, continuing to run the business in this manner while fielding questions and document requests from the due diligence team may prove quite difficult. It would be disastrous to neglect operations during the due diligence investigation, as any sudden or unexpected changes may end up derailing the sale altogether. As a result, the leadership team needs to think about the personnel it might need, both in terms of number and expertise, to ensure that things can be handled well on all fronts.

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