How Due Diligence Works
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Due diligence is a crucial process to evaluate a company that is up for sale. It covers everything from financial and legal to operational and environmental. There are two main types of transactions that require due diligence: selling a business and merging with or buying another company. Each type of transaction comes with its own complexities that can make it more difficult to determine the length and the intensity of the process.
Determine Your Needs
The due diligence process uncovers numerous potential issues that could undermine the transaction, so it’s important to consider your priorities and plan accordingly. You should also understand how the results of due diligence affect your deal and the terms you propose. Do they rely heavily on just two or three clients? Do you anticipate customer churn in the future? Asking these questions now will aid in setting expectations with the vendor prior to.
Prepare to be thorough
Individual buyers are often less thorough than businesses when conducting due diligence. It’s partly due to their personality (e.g. they might be cautious and apprehensive) and also due to the fact that they depend on professional advisors, who have their own hourly rate fees. However making preparations for the due diligence process as soon as you can improve your chances of a quick and successful sale.
Designate a point man to simplify communications and reduce the number of people looking over information. This will help you avoid delays and ensure that all issues are dealt with and promptly resolved. In addition, it can make it easier to convince buyers to shorten the due diligence timeframe if you’re well-organized and ready to begin.