Conduct Sell-Side Due Diligence Before Inviting Buyers In
A prudent course for sellers is to flush out problems, snags and hurdles that buyers are likely to spot, and resolve them before listing the business for sale and/or inviting buyers in to examine the business and raise questions.
What many first time sellers of businesses fail to appreciate is just how detailed and thorough a buy-side due diligence can be. Buyers and/or their professional advisers tend to go through everything with a fine tooth comb – from accounts to stock to employee contracts to relationships with suppliers. They are known to examine the licences on every piece of software used in the business, send snippets of the carpet away to test for level of fire-resistance and analyse the terms of every contract the business ever entered into.
When buyers find flaws with the business, or that which they perceive as a flaw (!) they are wont to use those in negotiations to get themselves better terms or a lower price.
This article advises sellers to run a dummy due diligence exercise on the business prior to buyers’ running a DD. Running a so called sell-side DD cannot be done in-house. Businesses typically use external third parties to bring an objective view to the DD.
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