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How Due Diligence Works

Due diligence is a crucial process to evaluate a company that is for sale. It covers everything from legal and financial to operational and environmental. There are two kinds of transactions that require due diligence: selling a business, and merging with or acquiring another company. Each type of transaction comes with its own specific complexities that prolong the duration and the intensity of the process.

Recognize Your Needs

The due diligence process uncovers numerous risks that could cause a snag in the transaction, so it is important to think about your priorities and plan accordingly. It is also important to understand how the due diligence results will impact your deal and the terms you provide. For instance is the business reliant heavily on one or two customers? Do you anticipate customer churn in the near future? Examining these questions now can help you set expectations with your vendor ahead of time.

Prepare to be thorough

Individual buyers are less thorough in their due diligence than companies. It’s partly due their personalities (e.g. they may be risk-averse and detail-oriented) and also due to the fact that they depend on professional advisors who charge their own hourly rates. Making preparations for due diligence as early as possible will increase your chances of a quick and efficient sale.

To streamline communications and decrease reviewers of information, assign a single point of contact. This will help you avoid delays and ensure all issues are taken care of in a timely manner. It will also be easier to convince the buyer that the due diligence period can be reduced by having everything prepared and organized to begin.

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