Today we talk about 3 key areas to assess during due diligence, that in a lot of cases are overlooked.
Have a look at our last video about negotiating effectively on the sale price. Once you have successfully agreed on the price and terms with the Vendor, you will move on to the next stage of the sales process, due diligence.
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I will start by saying that most people think about due diligence as reconciling and verifying revenue and expenses. Yes this is an important step, and the sale likely won’t go any further if there are material differences to the information that you based your offer on. But what about assessing operational risk as part of the due diligence process, this is the part that is often overlooked.
Crunching numbers is about looking at the business yesterday, assessing risk is about projecting how the business will look tomorrow, and as a buyer that’s the part that you should be most interested about.
Building a risk assessment speaks to how well the business will perform when the business is transferred, and the old owner leaves and a new owner fills their shoes. This in our view is what will truly measure the future success of the business and your investment.
There are many areas to think about, so we’ve broken them down in the 4 key areas of focus.
Will all the customers stay with the business when there is a new owner?
Will they demand better prices in exchange for staying?
Is there a danger of payments terms deteriorating?
Will all the suppliers continue to supply the business and are there any favorable supply terms that may not be offered to a new owner?
Licensing and Permits
Is there anything regulatory that could affect the business in the future? What operating regulations are difficult to maintain?
The Owners Role
Is the owner a walking Encyclopedia of business processes and intellectual property that is about to leave with all that knowledge?
When you are conducting these types of investigations, there can be meaningful questions to ask, and meaningless questions to ask so follow this one simple rule. When you ask a question, always explain the reason why you are asking and the objective, what is it that you hope to find. This is going to help the Owner to interpret what you are looking for and deliver the right information to you.
This is a topic that is really important for us, and an approach that many buyers overlook which can get them in to big trouble down the track, so if you need any assistance in this area, get in touch with Vision Brokers and Advisors.
Thank you for watching and happy buying and selling!
Good luck, and make sure you have a look at our business for sale.
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