20^th May 2020

BCC Advisers – USA

Due Diligence Preparation

One of the most important and often most tedious aspect of a business sale is the due diligence process. Buyers use this process to verify that information used in their evaluation to date is consistent and accurate. Revelations of accounting issues, missing contracts, or other red flags can lead to a renegotiated purchase price or can derail a transaction entirely. Steps can be taken to prepare for and mitigate unnecessary issues, especially once we enter the post-pandemic period.

ANTICIPATING REQUESTS

Every buyer has a unique list of due diligence requests, but there are some broad categories that are common. Preparing some of this information beforehand will decrease the time needed for this process. Listed below are categories to consider:

• Corporate and Organizational Documents
• Customer Information
• Employee Information
• Financial and Tax Documents
• Litigation and Regulatory Matters
• Intellectual Property
• Real Estate

The current pandemic is causing considerable disruption and change for many businesses. Buyers will undoubtedly take a deeper look at the effects of the pandemic during due diligence. A few specific items to anticipate and prepare are:

• Identify and track key data points used to evaluate the health of the business both before, during, and after the pandemic. This will help support the actions taken in response to the pandemic and the recovery.
• Revise projections to the extent possible to reflect any impact on the business.
• Track all one-time expenses related to the pandemic for easier identification of add-backs to cash flow.
• Ensure your ability to provide an audit trail for all funding received from the government to prove compliance with the relief bill requirements.

ORGANIZATION

Not only is proper organization and filing of corporate documents a good business practice, it can save a significant amount of time during due diligence. Having an organized, digital library of corporate documents and contracts, for example, cuts down on the time and cost of searching through a multitude of unorganized folders. We utilize a virtual data room for storing and distributing documents among parties. This allows for quick, easy, organized, and secure sharing of information during due diligence. While you won’t likely be utilizing a virtual data room prior to speaking with a prospective buyer, it is important to understand how documents are shared so you can organize your own files in a consistent manner.

DUE DILIGENCE TEAM

Generally, due to the extensive requests and varying areas of focus, it takes a team to satisfy due diligence information requests. In addition to owner(s), this team often includes an attorney, accountant, HR service provider, insurance agent, and other key employees. Establishing a point person will help to manage the flow and organization of the process.

Every aspect of your business will be analyzed during due diligence. Being prepared, organized, and honest throughout the process will go a long way toward earning the trust of a potential buyer and realizing the full value of your business.

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