Use Sell-Side Due Diligence to Evaluate Your Own Company

As part of the selling process, your company will go through a due diligence process with the buyer. This involves extensive analysis of financials and other key information as the buyer looks for any potential weaknesses in the seller. Companies open to offers should conduct sell-side due diligence to ensure that everything is in order to be successfully acquired – think of it as a dress rehearsal for the real thing. Additionally, conducting a sell-side due diligence review can be useful even for companies that aren’t actively on the market. Evaluating your fitness for acquisition every few years is useful to ensure everything is in order.

Sell-side due diligence offers many benefits to companies, whether they’re actively looking for buyers or just keeping their options open. Sell-side due diligence ensures that your company’s finances and business practices are healthy, legal, and as good as possible. In short, you would be ready if an offer came in. Conducting these practices almost always leads to insights about where your business processes could be streamlined or other improvements.

How to conduct sell-side due diligence

Conducting sell-side due diligence walks you through the steps you’d need to take to get your business ready to sell. You’ll learn where the holes are and how to be prepared for some of the questions potential buyers will have.

1. Why do you want to sell your business?
   Potential buyers will ask you why you’re selling, and it’s important that you can answer that question in a way that doesn’t give them the impression that the business is not thriving or lacks the potential to grow. Your answer should be truthful and reflect positively on your company’s position in the market and prospects.
   
   
2. Financial audit
   Take a good look at your financial situation as an outsider would. Look at cash flow, compare your capital-to-sales ratio to others in your industry, and compare your margins to your competitors. This practice almost always results in value-generating insights you can use to improve your business.
   
   
3. Evaluate your business sustainability
   When you look at your business, could it continue growing after you’ve left it? This step requires you to take an honest look at your prospects for growth over time.
   
   
4. Ensure transparency
   In short: document everything! Small businesses often deal in off-the-books agreements and informality. For due diligence proceedings, everything needs to be documented and shared. Potential buyers will want transparency.

We work with business owners who are considering their options for a business transfer. Regardless of if you are planning for an exit a year from now or 5 years from now, it’s never too early to start planning. Contact us for a confidential discussion of your specific situation. We have experience helping business owners across various industries sell their businesses, as well as relationships with buyers interested in new opportunities.