Selling your business is not something that should be entered into lightly. Putting out feelers or testing the market to see if there is any interest can do more harm than good. When you actually are starting to consider putting together an exit strategy, the first place to look is internally. Sell-Side Diligence is growing in popularity in the United States because of the number of benefits it can bring before, during and after the deal but some business owners do not understand the process.
Sell-Side Diligence is nothing new to world. In Europe it is often referred to as Vendor Due Diligence and is extremely standard in in transactions. From a logical standpoint, the process makes a lot of sense. Look into your own closet, drag out all the skeletons you can find, take care of those that are easy to resolve and then let potential buyers know about the rest so there are no surprises. This process will not only increase the value of your business but it will also smooth out the transaction process.
Many small and middle size business owners and CEO’s are under invested in the back office side of their business. They are hyper focused on driving up the top line. Things like driving profitability, research and development and marketing efforts take up most of their time. This means things like accurate financial information and operational technique and business structure issues get overlooked. When you delve into sell-side diligence all potential issues are churned up. Some of these are easily corrected and can increase value and desirability.
Even for those issues identified that cannot be corrected, identifying them has a benefit. One of the easiest ways to kill a deal is when the buyer discovers something they do not like late in the due diligence process. These late discoveries put the seller in a defensive position on price and the terms of the transaction. They also make the buyer more hesitant to follow through with the transaction because they can be suspicious of other unknowns that might be out there. When a seller goes through sell-side diligence, everything is disclosed at the outset and there are no eleventh hour discoveries to derail the transaction.
Sell-Side Diligence can also drive competition for your business. Right now it’s a seller’s market and there are a lot of potential buyers with access to capital. When a desirable asset comes available there can be a lot of eyes on that business. A seller that has gone through sell-side diligence not only gains credibility in the eyes of potential buyers but those potential buyers have a tendency to remain interested further into the transaction process. This can mean that potential buyers are bidding against each other for your business. If leveraged properly, that can mean better price and terms when you sell your business because you put a minor investment in the planning process up front.
The potential ability to make your business more efficient, to avoid potential issues during the transaction and to potentially drive up the competition to acquire your business, seems well worth the upfront investment in sell-side diligence. This is also a time to vet out the team that you will be relying on taking you through selling your business. Working with them in a less pressured environment than the actual transaction can give you comfort and insight into how they perform.
For more information of sell-side diligence and tips on selling your business contact The Business Law Group today.
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