Buyer's due diligence is a standard part of every business sale.
In order to gain a complete picture of the company, buyers are entitled to an evaluation that discloses information about every aspect of the business, including sensitive information they weren't permitted to access during the initial stages of the process.
Not surprisingly, most buyers take due diligence very seriously, inundating sellers with an exhaustive list of information requirements and other requests. As a result, sellers often feel harassed by buyers who are just trying to get a better view of the company before they seal the deal. Tensions rise and any goodwill that existed earlier in the process evaporates as the deal's final stage approaches.
As the seller, you have to accept the fact that due diligence is a reasonable and required element of the sale. To survive due diligence, you'll need to rally all of the skills, resources, and good thoughts you can muster. Here are a few tips about how to get through the due diligence process with the deal – and your sanity – intact.
- Prepare. The best way to inoculate yourself and your company from a due diligence nightmare is to thoroughly prepare for due diligence before the buyer initiates the process. With a little advanced planning, you can create a due diligence packet that contains most of the information buyers need to evaluate the business. Is it a hassle? Sure – but it's a lot easier than releasing the information one document at a time.
- Disclose everything. Go into the due diligence process with the intention of releasing as much information as possible at the beginning of the process. Sellers are often reticent to release information until it has been requested by the buyer. This creates an adversarial relationship that persists throughout the remainder of the sale. By proactively disclosing the good, the bad, and the ugly upfront, you set a tone of cooperation and complete transparency.
- Exercise patience. No matter how prepared you are for due diligence, it's guaranteed that the buyer's demands will eventually start to wear thin. Rather than becoming angry and frustrated, try to put yourself in the buyer's shoes. If you were buying your business, you would want to know everything that could be known about it. Exercise patience and remember that in a few months this will all be behind you.
- Know your limits. Eventually, due diligence must come to an end. Buyers sometimes use due diligence as an excuse to put off the closing, so you might need to be the one who brings the process to a close. But before you do anything rash, consult with your broker and your attorney to make sure you've met reasonable due diligence requirements.