15Jan
Most business owners do not go through a DD more than once or twice in a lifetime. So it is important to understand what you need to do to make this a success. There is of course no guarantee that your business will pass DD, but it is obviously in your best interests to put your best foot forward.
1. A DD can take 4-12 months
A DD can take anything from 4 to 12 months to complete. It is going to suck up plenty of man hours to prepare and then respond to all the questions that arise.
The purchaser will provide a list of items they require and dependant on the size of your business and if you are dealing with a private or public company, the DD will be done by the purchaser and his Accountant or an Accounting firm. The size of the list depends on private v public company and will cover marketing, products/services and HR, with the bulk related to financials.
To begin with, someone needs to take ownership of the process and take personal responsibility for the outcomes. You must have a ‘point person’ who drives the prep process from beginning to end. This individual would normally be your Accountant or Finance Manager, as a huge part of the prep is around financials and HR.
The key thing to remember here is you cannot allow the business to suffer during the DD, as this will impact the final valuation of your business. So be realistic about who runs the DD from your end, and ensure that individual allocates sufficient time and effort and is capable of answering the questions that a large Accounting firm could fire off about your business. Sure you will always be involved, but at very least you need someone to compile all the info.
2. Be honest
The purpose of a DD is for the purchaser to check that everything you told them in the IM is true and an accurate reflection of your business. If they find something they do not like, there is a good chance they will walk away.
So the rule of thumb, is no BS. As covered in a previous report of mine, having weaknesses in any business is expected, no business is perfect, and the purchaser looks for weaknesses that they can reverse and add value to their own ROI.
You will be signing a rather comprehensive sale agreement which will contain indemnities to protect the purchaser against any BS or things they were not able to discover during the DD, so honesty is the best policy in DD.
3. Get help
If you do not have the in-house skills to prep for a DD, or simply are too scared to take your eyes of your business for 4-12 months, or put in the 50-100 hours of work involved, then get help. Do not be afraid to ask for help, it will be money well spent!
Your first port of call is obviously your Accountants who may send a staff member over to help you compile the info. The important rule of thumb here, is get it right first time, otherwise the DD process will take longer, get uncomfortable, and you do not want the purchaser to lose interest.
An important thing to know with DD, the faster and smoother it goes, the more chance that you will reach settlement. On the other hand, the longer it takes the more likelihood that the purchasers circumstances will change and the deal will fall through.
Conclusion
The purpose of this report is not to scare you, it’s to inform you and ensure that you have perspective. The worst scenario is you thinking this is going to be a simple 90-day process and it drags out a lot longer and you are not prepared for that.
To your success...
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