Tip 1: Conduct Pre-Sale Due Diligence

Many business sales fall apart during the due diligence process when issues are discovered. If the buyer unearths problems you failed to disclose, they’ll end up in a strongly leveraged position and you’ll compromise your negotiating posture as a result. This can entice the buyer to make additional demands and negotiate a lower purchase price or change other material terms of the transaction. Each item the buyer finds fault with during due diligence gives them leverage to claw back at the purchase price or terms, if they don’t abandon the transaction altogether. By anticipating and resolving issues before a buyer discovers them, you prevent the buyer from later using them as leverage against you. 

The antidote? Pre-sale due diligence. While pre-sale due diligence is optimally conducted just before putting your business on the market, it’s never too late to undertake such a self-examination. If you haven’t already done so, make this a priority – you can even implement these steps if your business is already on the market. Get your financials reviewed and in order, and perform legal and operational due diligence on your business as early as possible.

Hire a Third Party To Perform Due Diligence

I strongly recommend hiring a third party to perform due diligence on your business. An experienced professional will know what to look for and will be able to provide objective advice. Pre-sale due diligence will help you maintain a solid negotiating position and will speed up the due diligence process. Why is that important? The shorter due diligence is, the less time your business will be off the market during the exclusivity period, which can help preserve your negotiating position. Conversely, the longer due diligence takes, the longer your business will be off the market, and the stronger the buyer’s negotiating position will become as a result. 

If you have thoroughly prepared for due diligence, you can often bargain for a shorter due diligence period and stricter milestones. This can help speed up the process and therefore maintain your negotiating posture. Always remember – the longer the deal takes, the more that can go wrong. Also, the more emotionally and financially committed you become to the transaction, the weaker your negotiating position will become over time – especially when you’re dealing with savvy buyers.

Assemble an Online Data Room

Prepare a standard list of documents all buyers will request during due diligence, then organize them in an online data room before due diligence begins. You can give buyers a preview of this data room when you’re negotiating the letter of intent (LOI). The buyer will realize that this prep work reduces their risk because they’ll see that you have reviewed and addressed potential issues within your business in advance. This lowers the overall likelihood that a material problem will be discovered during due diligence that could cause the buyer to abandon the transaction. 

Letting the buyer know you’ve prepared for due diligence reduces any concerns that their investigation into your company will be a waste of time and money. Return is a function of risk – by discovering and resolving problems in advance, you reduce the buyer’s risk, which helps justify a higher price or more favorable terms – such as a shorter due diligence period or exclusivity, or both.

Your goal is not only to sell your business and move on to the next phase of your life, but to get top dollar for it. Pre-sale due diligence helps ensure you maintain your negotiating posture throughout the sales process by minimizing problems a buyer can use against you to erode your negotiation position.