6 Critically Important Aspects of Due Diligence

Performing due diligence as a part of your company’s annual review is a smart move and one that can help your business in a range of ways. Through this means, if the day comes that you need or want to sell, then you’re ready to go. There are six key areas of due diligence that you’ll want to consider. These are aspects that most serious buyers will consider when buying a business.

You can expect any savvy buyer to focus on the following during due diligence if they are truly interested in acquiring your business. Problems in any of these areas could spell serious trouble in the sales process.

1. Legal
2. Marketing
3. Environmental
4. Operational
5. Management
6. Employees

Legal Issues

In terms of legal issues, you’ll want to carefully evaluate whether or not your contracts and agreements are all current. Issues such as copyrights, trademarks and patents should all be examined. Most importantly, if there is any pending litigation it would be best to resolve the matter if possible. Likewise, if there are any potential legal issues, such as lawsuits, looming on the horizon, those issues should be addressed as well. Try and think about what your own lawyer or legal team would want to see out of a business before recommending that you ink a deal. Obviously, these types of legal issues should not and will not simply be overlooked.

Marketing Issues

Marketing issues should be dealt with as well. Business owners should understand not just their business, but the industry as a whole.
Consider the following questions:

• Who are the industry leaders?
• What is the size of the market?
• Who are your current and future customers?
• What are the upsides and risks of your products or services?

You should demonstrate to a prospective buyer that you understand the “lay of the land.” You should be able to convey a strong grasp of how the business is currently positioned and how it may be positioned in the future.

Environmental Issues

One serious environmental issue can derail a deal or even destroy a business. Prospective buyers are very wary of potential environmental issues. Identifying and addressing environmental issues, if possible, should be a key part of your preparation for due diligence.

Operational Issues

Another key area to evaluate is operational issues. Your company should have an easy to understand program for how products or services are handled at every point of the process. How your goods or services are delivered to the customer shouldn’t be a mystery, but should instead be clearly defined to a prospective buyer.

Financial Issues

As there is clarity in how your goods or services reach consumers, the same holds true for financial issues. You do not want your finances to seem mysterious. Everything from your inventory and supply chain to your accounts receivable and accounts payable should be well laid out, accessible and easy to understand.

Employees and Management

Problems with employees or management can spell doom for any company. You’ll want to take steps to cover any potential issues in these areas well before selling.

Working to address these six key areas will help keep your business in a ready to sell posture. While you might not plan on selling today or tomorrow, there is no way to know what the future may bring. It’s best to be prepared.