Here’s how to stop your business sale from falling apart during Due Diligence

Jun 5, 2018

Industry News

Sharing is caring

When a seller tries to hide facts, or doesn’t disclose them to buyers and they are uncovered during due diligence, say goodbye to the deal. 

According to Forbes, “approximately half of all deals fall apart during the formal due diligence stage, and one of the most common reasons this happens is due to the buyers uncovering  issues which the sellers didn’t disclose earlier.” These situations are never pretty. Accusations are made, lawsuits follow, buyers lose their investments, sellers forfeit any earn-outs and face “financial claw backs” and businesses deteriorates rapidly. Nobody wins. These situations are all too common and in most cases should never happen.

due diligence
First, don’t rush to go to market.

Rushing to market can be caused by age, illness, burnout, divorce, legal problems, partner squabbles and myriad other reasons. But, in spite of these reasons, rushing to market could significantly impact your ability to get an optimal deal for your company. Going to market unprepared is a recipe for disaster. Since most business owners will only sell a company once in their lives, it’s a good idea to engage with a professional adviser to help prepare for the transaction process in general and the due diligence process in particular.Think about it. You spend years building a successful business. You decide to sell, spend time trying to find a qualified buyer to sign an LOI (letter of intent to purchase your company) and begin negotiations, only to have your potential deal fall apart because of undisclosed items arising during the due diligence process. So what can you do about it? Below are four “musts” for successful deal making.

Second, prepare for the buyers’ due diligence process.

Prepare for intense buyer scrutiny.  Far too often business owners simply do not do their homework prior to the process and pay the price in the end when their deal falls apart. If a seller is not prepared in advance, due diligence can drag on for weeks; and, often, if it does, buyers get cold feet and move on to other, more attractive opportunities. Have an adviser create a typical due diligence check list and put you through the rigor of answering questions that could arise.

Third, disclose, disclose, disclose.

Throughout the discussions, negotiations and the due diligence review between a buyer and seller, credibility is being tested. In your discussions with the buyer, explain your challenges before they find them; understanding them will allow the buyer to get comfortable with your business. Disclosing the challenges actually builds trust and credibility. As long as the parties deal honestly with each other, trust builds. But, if either side tries to hide material information that surfaces during due diligence, trust will be shattered. The cardinal rule of deal making, during the due diligence process, is disclose all material information.

Remember, the goal is to sell the business. Disclosing the good and the bad about the business, warts and all, is just prudent deal making.

Fourth, think like a buyer.

Look at your business as if you were a buyer. Ask yourself, what would I need to know about this company if I were buying it?  What are its strengths and weaknesses?

A great exercise for sellers is to put together a list of everything that worries them about their own business – those that keep them up at night. Then, detail potential solutions to each problem that can mitigate a buyer’s concern. For example, if the business has some old equipment, the seller can be proactive and have a spreadsheet ready that details replacement costs and financing options along with the potential improved efficiencies that will contribute to the bottom line.

due diligence

#DueDiligence
#Uphando
#SettingTheStandards

Sharing is caring

12 comments on “Here’s how to stop your business sale from falling apart during Due Diligence


  1. Jona says:

    Hey there would you mind sharing which blog platform you’re working with?
    I’m planning to start my own blog soon but I’m having a tough time choosing between BlogEngine/Wordpress/B2evolution and Drupal.
    The reason I ask is because your layout seems different then most blogs and I’m looking
    for something unique. P.S Apologies for being off-topic but I had
    to ask! It’s perfect time to make some plans for the future and it’s time to be happy.
    I’ve learn this post and if I may just I desire to suggest you some attention-grabbing issues or suggestions.
    Perhaps you could write next articles relating to this
    article. I want to learn more issues about it! It is perfect time
    to make some plans for the future and it’s time to
    be happy. I’ve learn this put up and if I could I want
    to counsel you some interesting issues or suggestions.
    Maybe you could write next articles relating to this article.
    I want to learn more issues approximately it! http://foxnews.co.uk

    1. Salome says:

      Hi Jona

      We are using WordPress to post our blog. It is very user friendly and it has many different themes or looks for blogs that you can choose from when you sign up. Would definitely recommend. In the new year we plan on going full speed again with posts relevant to the industry. We will have a look at your article and see what we can write about the subject.

      Please let us know at any time if there are any other industry subjects you would like us to write about.

      Best of luck with your choice of platform and happy posting.

      Enjoy the festive season.

      Kind regards
      Uphando team

  2. Right away I am ready to do my breakfast, afterward having my breakfast coming over again to read additional
    news.

  3. ergfirnolikz says:

    You made a few good points there. I did a search on the subject matter and found nearly all folks will agree with your blog.

  4. Delila says:

    Amazing! Its in fact remarkable paragraph, I have got much clear idea on the topic of from this post.

  5. Hey! This is my first visit to your blog! We are a collection of volunteers
    and starting a new project in a community in the same niche.Your blog provided us beneficial information to work on. You have done a wonderful job!

  6. I really love your blog.. Pleasant colors & theme.
    Did you make this amazing site yourself? Please
    reply back as I’m hoping to create my own personal website and would
    love to learn where you got this frrom or what the theme is called.
    Appreciate it!

    1. Salome says:

      Hi

      Thanks so much for your interest in our blog. We use a site called WordPress that makes everything much easier.
      Otherwise we have heard that Wix is also a nice site to use if you do’t have lots of web design skills.
      Let us know if you have any other questions or would like us to write about something specific.

      Kind regards
      Uphando team

  7. Hi there! I could have sworn I’ve been to this blog
    before but after going through many of the posts I realized it’s new to me.
    Anyways, I’m certainly delighted I found it and I’ll be book-marking
    it and checking back often!

  8. Jeff Nadrich says:

    When someone writes an piece of writing he/she keeps the image
    of a user in his/her mind that how a user can know it. So that’s why this post is outstdanding.
    Thanks!

  9. What’s Taking place i’m new to this, I stumbled upon this
    I have found It absolutely helpful and it has helped me out
    loads. I hope to give a contribution & aid
    other customers like its helped me. Great job.

Join the Discussion