9 Tips For Faster Due Diligence For Sale Of Business
Acquiring a business is a complex process which requires extensive planning on the part of the buyer as well as the seller. The due diligence for sale of business is one of the most important activities which must be completed efficiently in order to successfully close the transaction. The buyer needs to make a comprehensive study of the target company’s condition to assess whether the deal will be fruitful or not. Business acquisition is a common practice in large economies like India where corporations use the strategy to establish themselves in their sector. They engage top due diligence firms in India to get assistance on the matter and complete the process. It can be a time-consuming procedure though, and sellers can use the following tips to conduct due diligence in a speedy manner. Let’s take a look at the suggestions.
1. Collecting The Required Information Well In Advance
The best way to quicken the due diligence process is to collect all the information that the buyer requires, well in advance. The nature of the information being sought after by an acquirer usually remains the same and sellers are looking for documents related to the selling entity’s financial condition, business incorporation, sales, assets, liabilities, human resources etc. If all this data is gathered by the target company even before a buyer is finalized, then it would help in starting the due diligence process immediately after a purchaser is found and the necessary pre-sale contracts signed.
2. Providing Important Information With The Initial Contract
The two parties involved in an acquisition sign an initial contract which formalizes their intent to conduct the deal with each other subject to fulfillment of certain conditions. It will be sensible to provide important information about the target company’s present condition to the purchaser with this contract. This will give a comprehensive idea to the buying side about the seller’s business and when the due diligence is finally conducted, only some additional specific data will be required by the acquirer.
3. Make It A Habit To Maintain Key Documents
Business organizations must make it a habit to maintain key documents throughout the duration of their existence. This will ensure that the latest versions of important papers like balance sheets, cash flow statements, profit-loss statements, tax papers, and credit reports are always available. This will be helpful in ensuring regulatory compliance for the company and when the entity is involved in a high-value transaction like acquisition, all the documents can be immediately provided to the other party.
4. Resolve Pending Legal Issues
One of the biggest causes for delay in the sale of a business can be legal issues involving the target enterprise. Such problems can also lead to devaluation of the company. In order to avoid such a loss-making scenario selling entities must resolve all pending legal issues even before they start looking for a purchaser. This will eliminate any chances of a delay happening in the due diligence process because of legal problems.
5. Always Update The Human Resources Data
The human resources of the selling entity are one of the key aspects of due diligence for sale of business. The buying side wants to know complete details about the employees on regular payroll as well as those on short-duration contracts. It will also be interested in the costs of paying their compensation and the nature of contracts used for formalizing their agreement. Organizations must update their employee database on a regular basis so that whenever the information is asked for, not much time is required for gathering it.
6. Clarity On Ownership Of Intellectual Property Assets
The target company must possess the documents proving its ownership of different kinds of intellectual property assets. The brand and logo must have trademark protection while any handbooks or product manuals must be protected with copyright. The patent documents of a unique product or service being sold by the organization must mention the entity as the owner. In many cases, the employee who invented the item registered the patent in his/her name which led to disputes over ownership rights in the future.
7. Set A Target Date For Closing The Sale
One of the best ways to ensure that due diligence is completed quickly is to set a date for closing the transaction. This will help set a target for both the parties and they will try to finish all the necessary work before the deadline. In fact, both the sides, after consulting each other must set target dates for all the stages involved in the sale process. This will encourage them to complete each phase quickly and close the sale by the specified date.
8. Include Specialists In The Team
Due diligence is a critical activity on which rests the fate of the whole deal. It will be pertinent for sellers to hire specialists for each aspect of their business that will be scrutinized by the acquirer. A dedicated team must be created for the purpose which must have an expert chartered accountant and tax adviser. A lawyer, financial planner, marketing expert, and human resource professional must also be a part of this group.
9. Get An Independent Valuation Of The Business
Most deals are not closed successfully because of the inability of the two sides to agree on a price. Target enterprise owners must hire independent experts to conduct a valuation of their business. This will not lead to unrealistic expectations regarding the final price on the part of the seller. It will also keep the due diligence process on track with reduced chances of the deal not being realized because of disagreement over the value of the transaction.
Conclusion
Due diligence for sale of the business can be a time-taking process which can delay the successful closure of the deal. Entrepreneurs can take help from the suggestions given here to conduct the process quickly and efficiently.
