If you are thinking of selling your business, be proactive, and not myopic in planning that sale. Sell-side due diligence is a reverse due diligence where you retain accountants or third-party advisors to perform proactive due diligence on your business, gearing it up for sale. These due diligence experts scrutinize your business for deal breakers and increase value. Investing in sell-side due diligence most often pays off for every seller.

 

First, sell-side due diligence helps identify problems and provide an opportunity to resolve those problems well in advance of presenting your business to an acquirer. Let’s say for instance that you have multi-state tax nexus, requiring your business to file tax returns in various states from activities in those tax jurisdictions. If you have not filed taxes in various states you have nexus in these jurisdictions, this potential liability could reduce value. Sales tax liabilities could be another risk. Or, let’s say you have a warranty liability on a new product, sell-side due diligence will help you identify and resolve these potential problems well in advance of gearing-up your business for sale. If you don’t correct these value reducers before taking your business to market, you could potentially break a deal, or lose value at the negotiation table. Your sell-side due diligence team will create options to resolve these value reducers before they are brought to your attention from the buy-side due diligence team.

 

Secondly, what surprises do you need to avoid. How polished are your internal financials for the years that will be scrutinized? How meticulous is your accounting software? What operations risk does your business have, or personnel resource concentrations? Will your businesses greatest intangible, your experienced employees, stay if you sell the business? Do you need an accountant to fine tune your internal financials or provide solutions to tax risks, such as expense lines that are skewed, or resolve book to tax differences? What about independent appraisals of fixed assets such as equipment or real estate?

 

Thirdly, a sell-side due diligence team will help you add value to the sale of your business asset. The objective analysis of your businesses financial performance, credibility of revenue forecasts, and specific niche buyer values, will help prepare you to contact buyers that could benefit from a strategic acquisition of your business. Thinking through the questions and inquiries that a buyer will raise and preparing appropriate responses all assist in making negotiations smooth. Options on tax structures of the sale such as an asset sale or stock sale will be question that financiers raise and important to the overall transaction too.

 

Is your business worth more as an entire unit, or could you sell divisions of your business in a “carve out” for more value? Where is the value in your business? Is it in real estate, intangibles like goodwill, or patents, or say equipment and machinery, or inventory?

Understanding what will interest a buyer, how they will pay for the purchase, and how it benefits them will make inking the deal easier. Proper sell-side due diligence puts your in control during the sale, minimized surprises, and adds value.

 

 

Summary

 

Sell-side due diligence is about preparing for the potential buyer(s) of your business before your business reaches the marketplace. Every business sells; and when yours does, plan ahead. Perform sell-side due diligence, with your accountants and/or third part advisors. They will help you build trust, and ultimately add value in the marketplace.