Due diligence is the process of investigating a business prior to purchasing it. When a buyer makes an offer on your business, there is a period of time that follows where he or she researches your business and further investigates the situation. This period of time typically lasts 2-8  weeks (approximately 30 days for smaller deals and 30-60 days for larger deals)and is called “due diligence.”  However, it is also important that you, the seller, perform your own due diligence. By doing this, you will discover red flags and be able to fix problems in your business before a buyer can discover them.  Here are four tips that you should read before listing your business for sale.
 

1. Perform your own due diligence properly.

As a seller, performing due diligence can mean the difference between attracting the right buyer and having your business sit on the market. The market is fickle and sellers who perform due diligence properly are the ones with the competitive edge. 

 

2. Do not procrastinate.

Business owners looking to sell their businesses often ask “when do I start due diligence” and the easy answer is, the sooner the better. Inexperienced business owners do not understand how involved the process can be and unfortunately, many business owners postpone this process too long and then rely on the buyer’s due diligence.  While you may still get your business sold by doing this, you can sell your business for more money and faster by performing your own due diligence.  As soon as you decide to sell your business, start working on due diligence. You will be thankful for this in the end!

 

3. Plan your exit strategy.

It is never too early to start planning an exit strategy and preparing for a future sale.  A good business owner understands that leaving your business is inevitable. You will, one day, pass the reins. Waiting to perform due diligence until you need to sell the business can leave you overwhelmed, especially if you have to sell the business suddenly. Note that while you can sometimes prepare for due diligence by simply conducting internal audits and making necessary changes as you see problems arise, in most cases, you need help from a third-party expert.

 

4. The key to due diligence is organization.

It cannot be stressed enough that organization is the key to successfully operating and, eventually, selling your business. If you are reading these tips thinking you are nowhere near ready to sell your business, then let this be the takeaway point: get your business documents organized! By having all your business ducks in a row, due diligence will be a much smoother process. There are many programs out there these days to help you keep your business documents organized. If you have a box of papers you just cannot seem to get a handle of, invest in a scanner and get those documents backed up and saved to the cloud. Trust us on this one: organization is one area you do not want to procrastinate.


Michael Schachter Bio

Michael Schachter ,Attorney and Co-founder

The Pearson and Schachter Law Firm

Michael Schachter is a founder and an owner of Pearson & Schachter, where he is a business, corporate and real estate transactional attorney. Michael has represented a broad range of companies, from early stage to publicly traded companies.

Michael’s corporate practice includes the consummation of mergers, stock sales, asset acquisitions and...

Morgan & Westfield Deal Talk -
Why Seller Due Diligence is Vital to a Successful Sale