Due Diligence: Critical for a Successful Transaction

Due diligence is the process through which a potential buyer evaluates a company or its assets for acquisition prior to signing a contract.  It can be equated with a potential buyer of a house getting an inspection.  The buyer, in either case, wants to find out everything they can about their acquisition before they make a purchase at risk of getting stuck with a lemon.  As with house buying, many sales of businesses fail during this process because the buyer either gains, or fails to gain, information.  In many cases either one can result in making him or her uneasy.

It is always in the best interest of the seller to be forthcoming about any information that you would want to know if you put yourself in the shoes of the buyer.  The more open and honest, the better; your honesty will gain the buyer’s confidence, which will put you in a much better position to close the sale.

The buyer should provide you with a detailed list of any and all materials they would like to have for review. This Due Diligence Check list offers a comprehensive list of items that may be requested, or to consider requesting if you are the buyer.

It is common for the seller to feel uncomfortable with disclosing everything asked for by the buyer.  If you decide not to disclose certain items, you first better have a valid reason, and second, should reconsider that decision and see if you can give the buyer what they are looking for in the best way possible.  If your fear is disclosure jeopardizing the sale, you need to realize that non-disclosure may end up doing the very same.  Being as transparent as possible during this stage of the selling process is going to get you farthest in finalizing the sale of your business.