The Importance of Due Diligence When Selling Your Business

You might think that making the decision to sell your business was the difficult part, when buyers start their due diligence part of the process it can be stressful too. Buyers will want to know what they are getting when the deal closes, which is fair, the process can produce a lot of anxiety for the seller. Thus, it is important to take certain measures to reduce the stress where possible.

Take action
As soon as you make the decision to sell your company, you should start planning for the due diligence phase of the transaction. You should be proactive in collecting and organizing all of the legal documentation you know the buyers will want to review. For example, buyers will want to see your formation documents, key business contracts, financials, tax returns, employee files, and records related to your intellectual property. The more prepared and organized you are when the buyers show-up to examine your documentation, the less suspicious the buyers are likely to be.

Open Door Policy
The buyers are going to want to obtain as much information about your business as possible before agreeing to purchase it. While you may be tempted to hide any negative factors related to your business, this is not wise. Skeletons in your closet will come out eventually and, if you hid them from the buyer, it can result in very unfavorable consequences. If you are open and honest during the due diligence process, it will make the process go quicker as well as instill confidence.

You want to limit the due diligence procedure to buyers that are serious. Thus, you should only permit buyers who have executed a letter of intent to examine your records. You should also set an agreed “drop-dead” date to avoid wasting the parties’ time and resources. It is also important to designate an individual within your company to handle any inquiries from buyers.

The due diligence process requires your business to provide a great deal of confidential data to others. Therefore, it is essential that all interested buyers sign a non-disclosure agreement. The agreement should clearly set forth that the use of any proprietary information is limited to the negotiations of the sale and closing the transaction.

The Astill Law Office has provided high quality legal services for over 30 years. We specialize in business formation, wills, trusts, estate planning, and asset protection. If you have any questions about creating a Trust, Will, or estate planning in general, contact The Astill Law Office.