3 Ways to Prepare for Due Diligence When Selling Your Business

(Originally published on Finance & Commerce), Written by Leah M. Berend, CPA; Edited by Clarissa Schmeig

When considering selling your business to a private equity firm, due diligence is a crucial part of the process. Due diligence involves a deep analysis of your company’s financial, legal, and operational information to help the potential buyer make an informed investment decision. While due diligence can be a stressful and overwhelming process, it is important to prepare emotionally and organizationally to ensure a successful outcome. Here we will discuss what to prepare for emotionally, due diligence-wise, and how to prepare your team for this process.


Emotional Preparation

Selling your business can be an emotional experience, as it often involves letting go of something you have built and nurtured for years. It is important to prepare emotionally for the process of selling your business to ensure that you remain focused and engaged throughout the due diligence process.

One way to prepare emotionally is to recognize that the due diligence process is a necessary step in the acquisition process, not a personal attack on your business. It is crucial to maintain a positive mindset as there can be several questions when professionals try to understand your business. It is also important to remain calm and collected during the process, as getting emotional or defensive can potentially lead to misunderstandings or mistakes.


Due Diligence Preparation

Preparing for due diligence involves gathering and organizing all the necessary documentation and information that the private equity firm will need to evaluate your business. This includes financial statements, tax returns, customer contracts, employee records, and any legal agreements related to the business. It is essential to have a clear understanding of your business operations, financials, and legal agreements, so you can answer any questions or provide additional information as needed.

“As a business owner, there wasn’t any question that caught me by surprise.” says Mike Bistodeau, a founder & business owner, “I felt prepared going through the due diligence process after already having gone through an in-depth business valuation process. Staying organized and having the information readily available really helped us to get through the due diligence process smoothly.”

“Of pinnacle importance is hiring good advisors early in the life cycle of the business.” Says Loren Unterseher, Managing Partner of Oxbow Industries, “Investing in the quality of your outside legal and accounting team can pay dividends in time saved during the exit process”. The sophistication of quality outside advisors will streamline the acquisition process and their reliability will keep stress levels low during this big event in the life of your business.


Team Preparation

During the due diligence process, the private equity firm will likely want to meet with your key employees and managers to better understand your business operations. It is important to prepare your team for these meetings to ensure that they are informed and confident when speaking about the company and its operations.

To prepare your team, it is recommended to hold a meeting with all key employees and managers to discuss the due diligence process, what information will be requested, and how they can support the process. It is important to communicate the importance of accuracy and completeness when providing information, as incomplete or inaccurate information can delay the acquisition process.

It is also important to ensure that your team has a clear understanding of the potential impact of the acquisition on the company and their roles. If there are changes to the company’s operations or management structure, it is essential to communicate these changes early on to minimize any potential confusion or anxiety. Celebrate your team members who are knee deep in details. The due diligence process can be hard to balance with a daily workload so be mindful of the additional work your staff may have and provide resources to ease the burden, if needed.


Final Thoughts

Preparing emotionally and organizationally for the due diligence process is essential to ensure a successful outcome when selling your business to a private equity firm. By recognizing the importance of due diligence, getting organized, preparing yourself and your team; you can streamline the process and make it as efficient and stress-free as possible. While it is easy to get excited about the prospect of realizing all the hard work you have put into your business; consider the process a marathon not a sprint.

Ultimately, a well-prepared due diligence process can help ensure that the acquisition goes smoothly and leads to a successful outcome for both the business owner and the private equity firm.

Leah Berend is the Chief Financial and Chief Administrative officer of Oxbow Industries.

With over $2.5 billion corporate financial transactions completed, Oxbow Industries is dedicated to building businesses in partnership with their management teams. Oxbow seeks to invest in leading middle-market companies with outstanding leadership teams and a significant opportunity for equity appreciation. Learn More at www.OxbowIndustries.com