This article was originally created for Hayes Knight (now Nexia Auckland).
Home > Updates > Preparing for a Due Diligence
Due diligence is simply the process of checking a business out to make sure it is what it appears to be and that nothing is lurking in the background that will come out and bite a new owner. It can be compared to someone getting a mechanical check on a car and also checking if money is owed on it, before they hand over the cash and drive it away.
The last couple of due diligence assignments we’ve completed have really highlighted the importance of the vendor being fully prepared for the due diligence process. In one case, the purchaser walked away at the last minute simply because they lost confidence as a result of issues we uncovered. In my view none of the issues were deal breakers, but collectively they were enough to spook the purchaser and kill the deal. Had that business been prepared for due diligence, I suspect the deal would have gone through.
A lot of what is done in the due diligence process is specific to the individual business, but the following are quite generic parts of the process that are quite easy to prepare for:
This is by no means an exhaustive list, but it should get you off to a good start if you’re preparing to sell. Even if you’re not looking to sell, it is sound business practice to have all the above covered off. You never know when you may be forced to put your business on the market due to unforeseen circumstances.
When preparing for due diligence, if you find issues, and it’s too late to put them right, then be upfront about them. Disclose them early in the process and explain the situation fully. There is nothing worse that the purchaser finding problems during the due diligence process. Even if the issues can be explained, they chip away at the purchasers’ perception of the business and destroy confidence.
There are many studies available that categorically show that businesses that have prepared well for a sale will achieve a premium price, so get your house in order now and reap the benefits when it’s time to move on.
If you are looking at or even considering a new business purchase and want to find out how Hayes Knight can assist you with the due diligence process, contact your Hayes Knight adviser or Tristan Dean direct.
Tristan DeanBusiness Advisory Director T +64 9 414 5444 E email@example.com