Why your business sale may fall over during due diligence

Too often, business sellers come unstuck during buyer due diligence. Unfortunately, many deals fall over at this point in the process. When this happens, business sellers don’t only suffer from lost opportunity, but also wasted time and money. Here are 3 reasons your business sale may fall over during due diligence (and what you can do to avoid it).

1. Your business has taken a significant turn for the worse since taking it to the market

When you took your business to the market, your business was trading well. Sales were growing (or at least stable), staff were focused and customers were happy. Unfortunately things have changed, and the business has suffered because of it. Maybe your staff got wind of the sale and have less enthusiasm for their work than they once did. Perhaps you have taken your eye off the ball, in view of your impending exit from the business. Or maybe, the external environment has changed in a negative way causing your business to suffer.

Truth be told, it doesn’t matter what the cause is, if your business starts to decline during the sale process, irreparable damage can be done to your prospects of a successful sale.

If you want to ensure that your business does not enter a decline period when you take it to the market for sale, ensure that:

  • Confidentiality is maintained at all times. No staff, customers or suppliers should ever be aware of your planned sale (unless there are extraordinary circumstances).
  • You keep focused on the day-to-day running of your business. During the sale of your business, you should be extra focused on the day-to-day success of your enterprise. Ensure you hire an experienced M & A advisor to handle the intricacies of the transaction, so you can keep focused on the management of business.

 2. Claims about the business cannot be substantiated by supporting information

During all discussions with prospective purchasers, honesty is key. Any exaggerated or false claims made to prospective buyers will be uncovered as such throughout the Due Diligence stage, or earlier. Often this will erode the trust and goodwill built up between you and your prospective purchaser, and may cause prospective buyers to revise the price and terms of their offer, or even worse, walk away from the deal.

In order to avoid these issues, it is important to trust your M & A advisor’s judgement on what to reveal to prospective buyers and when. Also, it is vital for your M & A advisor to be the main conduit of information between you and any interested parties.

3. Key documents and records are not readily available to provide to your prospective acquirer

If key documents and records are not readily available for prospective buyers to view during due diligence, they will likely lose interest, or significantly alter their offer in a negative way.

It is normally impossible to completely prepare for every due diligence requirement prior to going to market, however there are key documents that most buyers will request and these should be collated and stored securely in anticipation of due diligence prior to heading to the market. An experienced M & A advisor can guide you on what documents and records are required given your circumstances.

Find Out More

If you are seeking a professional advisor to assist you with the merger, acquisition or divestment of a business with an enterprise value of between $1 million and $50 million please contact Quinn M & A on 02 9223 9166 or email [email protected] to find our nearest office.