Seventy to eighty percent of businesses don’t sell – that’s a widely reported statistic both in the UK and US where the markets for SME business sales are very similar.
There are many reasons why a business might not sell, but perhaps one of the most avoidable is failing due diligence. Imagine how frustrating that would be; you’ve appointed someone to sell your business, approved the Information Memorandum (the sale particulars), managed to get a potential buyer on the hook, exchanged letters of intent and even agreed a deal in principal … by which time you and your family are probably very excited and are already deep into your plans for life after the deal goes through… only it doesn’t. Your precious sale, possibly the ONLY person interested in buying your business, has been spooked by something their team has uncovered during the Due Diligence process and the deal’s off.
We were recently speaking to a Corporate and Commercial Partner we’ve been working with in a major North West law firm that handles a high volume of transactions per year and they were bemoaning the number of businesses they come across that are just not prepared for sale. It’s not a question of being poorly prepared – but more about not being prepared at all.
We’ve covered Due Diligence as a topic both in our blog and on our web site, but as a reminder, it’s a process the buyer and their professional advisors will go through to identify possible risks and concerns that they will then factor into the potential purchase of your business. What they discover may well make the decision for them to either price-chip heavily or simply walk away. It is the potential purchaser (and his team of advisors and Investors) asking the questions and validating the information. They want certainty. They want to be sure that what’s in the tin is exactly as described on the tin, with no nasty surprises when they get to take the lid off post sale. They’ll expect full disclosure and visibility of anything and everything that could conceivably influence their perspective on your business and their decision to buy it. Your role is to provide all that is asked for, your objective should be to answer questions before they are even asked.
They’re looking for evidence of anything that’s not quite as it should be – and it’s a little bit like finding a cockroach; when you find one you immediately start looking very hard for others because they’re almost certain to be there…
In preparing in advance for Due Diligence, you’re not just speeding up the sale process, you are improving your business and providing a digital and paper trail of evidence for your precious buyer to help them make the right choice in purchasing your business – You want to give them the confidence that you have nothing to hide, have prepared well, made changes and fixes along the way and can demonstrate that journey.
You don’t want them finding a cockroach.
If you’d like a confidential chat about preparing your business for sale or have questions you’d like answering, please click here.
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