Preparing for due diligence by a prospective purchaser
If you’re planning to put your business on the market, getting it ready for sale beforehand is crucial. You don’t want to be scrambling to put things in order when potential buyers are actually knocking on the door.
Any buyer with business sense is going to do their due diligence before considering making an offer. That means they’re going to have a checklist of things to scrutinize, questions they want to ask and people they want to meet. Being prepared for this will not only ensure your business is more attractive to prospective buyers, but it means you’re more likely to secure a better price.
The buyer’s perspective
When preparing to sell your business, it’s a great idea to consider things from the buyer’s point of view. In other words, what would you look for if you were the buyer?
One question a buyer might ask is your reason for selling. You should have an honest response that doesn’t suggest the need for urgency.
Buyers prefer low risk with high reward when they consider investing in small business. Ultimately, buyers will look for good cash flow and solid systems with the potential for further growth.
Buyers need accurate and complete information to make an informed decision on whether your business is suitable for them. You can help this process by understanding who your potential buyer is and what they may want to know about your business.
In order to be prepared for the most likely questions prospective buyers will are, make sure you:
- Have an answer prepared around your competitive advantages and unique selling points.
- Demonstrate how you’ve successfully handled the ups and downs, especially if yours is a seasonal business.
- Have at your fingertips pertinent information around, leases, customer agreements and intellectual property you own. When do they expire or require renewing?
- Are clear about whether you’d agree to stay with the company on a temporary basis to ensure a smooth transition.
- Know what levels of stock and investment will be required in the foreseeable future.
It’s likely that potential buyers will want to view at least three years of financial statements, including income statements and balance sheets. They’ll be buying into your business’s future profitability, so explain any differences between what the finances are showing now, and what they could be showing in the future.
Finally, buyers will be aware that there’s a risk of customers leaving after you sell. You’ll need to reassure them that your customers are loyal to the business rather than to you.
Time for a makeover
In much the same way that you’d spruce up your house before it goes on the market, giving your business a makeover so that it’s presented to its best possible advantage is essential.
This means tidy financial records, optimal levels of staff and inventory, and tightened control over debtors. Fixed assets (like equipment and vehicles) should work well without needing to be replaced in the near future.
Go all out to increase sales, follow up leads, call in favors and ask for referrals. Identify what costs you can remove to increase your net profit. Can you buy materials cheaper, switch suppliers of overheads (such as energy and internet costs), or be more efficient with processes so you don’t need as many staff or contractors?
Talk to your staff and ensure they’re making the most of techniques like up-selling and cross-selling. Review their performance so that customer satisfaction is optimal.
Demonstrating how sharp your internal processes are will show buyers that your business is functioning efficiently and having sales records on hand to prove it is essential.
When you’re getting your business ready for sale, don’t forget the physical aspects as well. Update your signage and marketing material, so that you make good first impression when buyers come to view your business. Your premises should be immaculate and orderly, with friendly staff and lively activity. New signage, repainting, and implementing a general clean desk policy will help the overall impression.
Remember that, like any other aspect of business, planning and preparation are key to success. When you’re getting ready to sell, try as much as possible to keep the buyer’s point of view in mind, and keep asking yourself – what would I be looking for if I were thinking of buying this business?
Note that the resources listed here are meant solely as overviews and helpful information. Please consult experts regarding your specific security needs for your business.