How Due Diligence Works

Due diligence is a crucial procedure to assess a company to sell. It covers everything from legal and financial to environmental and operational. There are two primary types of transactions that require due diligence: selling a company and merging with or acquiring another company. Each kind of transaction is likely to be complicated, which can increase the length and intensity of the process.

Identify Your Needs

The due diligence process reveals many potential issues that could undermine the deal, which is why it’s important to take into consideration your priorities and plan in advance. You must also consider how the results of the due diligence process will impact your deal and the terms you will offer. For instance is the business reliant heavily on just one or two customers? Do you anticipate churning in the future? Asking these questions now will help you establish expectations with your vendor ahead of time.

Prepare to be Thorough

Individual buyers are often less thorough than companies when conducting due diligence. This is largely due to their own personal preferences (e.g., they may be more cautious or focused on detail), and it’s partly because of their reliance on professional advisors with their own hourly-rate fees to charge. However getting ready for the due diligence process as early as possible increases your chances of an efficient and quick sale.

To streamline communications and reduce information reviewers, designate a single point of contact. This will allow you to avoid delays and ensure all issues are addressed in a timely fashion. It will also be easier to convince the buyer that the due diligence period is shorter by having everything organized and ready to begin.

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