How Due Diligence Works

Due diligence is a crucial process to evaluate a company to be sold. It covers everything from legal and financial to environmental and operational. Due diligence is required for two types of transactions: selling a company and merging or acquiring another. Every type of transaction can be complicated, which could make it more difficult and lengthy of the process.

Identify Your Needs

The process of due diligence reveals various issues that could undermine the deal, so it’s crucial to consider your priorities and plan according to your needs. You must also know how the due diligence results will impact your deal and the terms you provide. For example do you think your company is dependent heavily on a few customers? Do you anticipate that churning will occur in the future? Examining these questions now can assist you in setting expectations with your vendor ahead of time.

Prepare to be thorough

Individual buyers are often less thorough than companies when conducting due diligence. This is due in part to their personal characteristics (e.g., they may be more cautious about risk or more detail-oriented) and also due to their dependence on professional advisors who have their own hourly-rate fees to charge. Making sure to prepare for due diligence as soon as you can can increases your chances of a successful and quick sale.

Designate a point person to simplify communications and reduce the number of people who are reviewing information. This will allow you to avoid delays and ensure that all issues are addressed in a timely fashion. In addition, it will make it easier to convince buyers to shorten the due diligence timeframe if you’re already well-organized and ready to begin.

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