Guide to Due Diligence

If you want to sell your business, you need to prepare your company first. This is called due diligence, and it means checking everything about the business is in order before buyers commit to a deal. Due diligence is typically done by buyers to gain a clear understanding of the business' financials, operations, and legal standing. However, sellers can also use the opportunity to showcase their businesses’ strengths and address potential risks.    There are four main types of due diligence that buyers will typically do:     1) Financial due diligence: Buyers want to understand how much your business makes and spends, and what drives profitability. They want to know the financial health and prospects of your business. Buyers typically analyse:     • Financial Statements: Audited financial statements (Consolidated P&L, Balance Sheet) for the last 3-5 years, including interim reports.    • Financial Projections: Detailed financial forecasts, along with sensitivity analysis and assumptions.    • Tax Returns: Corporate tax returns with details of any pending or potential tax liabilities.    2) Legal diligence: Buyers want to look at the legal side of the business. How is your business structured and registered? Does it comply with the rules and laws? Does it have any legal problems, and are your contracts in order? Buyers typically analyse:    • Corporate Structure: Organizational structure and details of any subsidiaries.     • Regulatory Compliance: Overview of compliance with industry regulations and details of any regulatory investigations.     • Litigation and Legal Proceedings: Review of any ongoing and past legal matters.     • Contracts and Agreements: Key contracts with customers and suppliers.     3) Commercial due diligence: Buyers want to assess your business from a commercial perspective. They will look at the market and customers of the business. Who are they, and what do they think about your business? How does your business stand out from the competition? How does it sell and price its products or services? Buyers typically analyse:    • Customer Base: Customer lists and profiles, including customer feedback.     • Market Positioning: Reviewing your market positioning and competitor dynamics.     • Sales and Pricing Strategy: Pricing model and sales pipeline.    4) Technical due diligence: If your business is dependent on technology, Buyers may want to look at the technological assets of your business. What kind of tools and systems do you use? How do you protect data and information? Do you have any valuable IP? Buyers typically analyse your:    • Technology Assets: Disclosure of proprietary technologies and inventories of software and hardware.    • Data Security: Evaluation of cybersecurity policies and measures to ensure data privacy and integrity.     Preparing for due diligence carefully is important for sellers to ensure a successful and smooth M&A. Here are some tips for sellers to begin preparing for due diligence:     • Research your investor: Find out what they want and need from the deal. Try to match their goals and alleviate their concerns.    • Tell your investment story: Use the due diligence process to show them why your business is valuable and unique. Highlight your strengths and opportunities.    • Be realistic: Don't overpromise or overestimate. Be honest.     • Think like a buyer: Anticipate what buyers might ask or have concerns about your business. Have clear and honest answers ready to address their concerns.    Going through due diligence sounds daunting, but you don't have to do it alone. Once a match is made with a potential investor, match.asia will guide you through the process.