While technically speaking Due Diligence is an aspect of the business sale process, it can also be used as an informative tool for business owners. As a business owner, taking a hard look at your business from a buyer’s perspective is a great way to help you get your business in a better place prior to sale, or to simply add value to your current operations.
Performing your own due diligence provides a number of benefits, but mainly it provides you with a valuable assessment of your business and allows you the opportunity to improve in areas you may identify as troubled or below par.
Typically there are a few main areas of focus for due diligence including reviewing the finances of the business, organizational & legal structure, management & employees, and legal items. We have addressed these areas and some questions to refer to below, however, there are a number of other areas that are important to review such as the business’s industry & competition, suppliers, information systems, insurance, and sales & marketing.
Conducting Reverse Due Diligence
Financial Due Diligence
-What is the status of your last three years’ annual and monthly financial statements, income statements, tax returns, and balance sheets?
-Can you provide detailed documentation of all expenses run through the business?
-Does the business have any bad debt history?
General Organizational & Legal Due Diligence
-What is the ownership structure of your business?
-Does your business have any patents or trademarks?
-Do you have contracts with your significant strategic partners?
Management & Employee Due Diligence
-What is your employee turnover history?
-Do you have an employee handbook with well-documented policies?
-Can you produce an organizational chart for your business?
Legal Due Diligence
-Has your business ever been threatened with or had legal actions taken against it?
Do you have all of the proper licensing and approvals from the state or local government to conduct business?
Delving into your company with new eyes, buyer eyes, is a great way to prepare for the future of your business no matter what it may hold and be comfortable with how much your business is worth. If you are considering selling your business or would like to discuss exit planning further with one of our brokers, we’d like to invite you to visit our website or schedule a free consultation today!
Rachael Holstein joined the Transworld Team in 2016 as Marketing Coordinator. Her working experience has been largely focused on Business Development and Marketing in the finance, architecture, property management, and information technology industries. A long time resident of Cleveland, Ohio, she attained her Undergrad from John Carroll University and a Master’s Degree in Global Interactions from Cleveland State University. She relocated to Denver in 2013 for a change of scenery and a bit of adventure.