A key part of exit planning is ensuring your company can withstand due diligence
In addition to helping clients prepare to sell their company to achieve a euphoric exit event, we also help clients do acquisitions. Acquiring before selling can be a very good strategy for accelerating the building of your company worth.
What we see far too often in helping clients do acquisitions is sellers who are ill-prepared to support a normal due diligence process. We then see the owners of the selling company putting themselves through unnecessary stress. When this occurs, the due diligence process drags on longer than it should causing both acquirer and seller to become fatigued with the process. This can also cause unnecessary cost for both parties, distraction of resources, animosity and ultimately cause one of the parties to withdraw from the process.
If selling your business one day to a third party is in your cards, ensure you will be ready and avoid these common issues we see caused by sellers:
- Corporate records are not up to date.
- Financial data is not clean for at least the past 3 years.
- Inconsistencies or conflicts in the data – as an example a financial report conflicting with an operational report.
- Lack of proper documentation of key aspects of the business – as an example no documentation of procedures for accounting methodologies such as revenue recognition or inventory management.
- Inability to show documentation of ownership of intellectual property such as internet domains or trademarks or tradenames.
- Customer, supplier or lease agreements that don’t allow for easy transfer to the acquirer.
- Environmental issues are identified during due diligence that are a surprise to the seller
- A seller who engages their general business lawyer versus engaging an experienced and focused M&A attorney to represent them.
- Key employees not supportive of the pending transaction.
Always conduct a due diligence dress rehearsal at least 2 years prior to wanting to sell your company. Avoid being “one of those sellers” that brings unnecessary cost, stress and fatigue to their exit event. Don’t reinvent the wheel, engage with a professional that will help you effectively prepare to achieve your future euphoric exit event.
