Due diligence is the process of verifying the information given about a business. The purpose of this is to check if the information is correct and accurate. Your business broker Shelter Valley will let you know that due diligence is a condition of the buyer’s offer. But what exactly will buyers focus on?
Review and verify financial information
The financial records are what tell a buyer if a business is profitable or not. As a result, most buyers will do everything possible to verify the financial information you provided. This may include the audit of financial statements for the past three years. Your accountant may have to meet with the buyer’s accountant to review, verify and at times recast the numbers. Your business broker Shelter Valley will help you know exactly what to expect in this stage and how to prepare.
Review and verify business structure and operations
Another thing a business buyer will want to do is review how the business has been structured and how it actually makes money. To determine the business’ potential for future earnings, the buyer will review information about the market penetration, competitors and industry trends. In this stage, the buyer will be reviewing and verifying a business’ customer base, business model, products & services and labor, operational and materials costs. Your business broker in San Diego will help you prepare for this.
Review and verify contracts
If a business has joint ventures or partnerships with other companies, the buyer will want to review and verify the material contracts. The buyer will also look at existing loan agreements, equipment leases and lines of credit. The objective is to understand the agreements or obligations that exist. Before you get your business listed, it is always good to make sure that all the contracts have favorable terms.
Review and verify customer information
Buyers will want to take a look at your customer list to make sure it is favorable. They will also want to know who your biggest customers are in terms of what they have purchased in the last several years. It will also be your job, as the business owner, to show buyers how you acquired and how you retain your customers.
Review and verify employee information
Buyers will want to go through your employee roster and organizational charts. The objective is to know who your key employees are and their key responsibilities. You should be able to demonstrate that your business can thrive in your absence.
Buyers will also want to review and verify your physical assets, intellectual property and check for pending legal issues. An experienced business broker Shelter Valley will help you prepare for the due diligence stage and guide you through it.