Due Diligence
Once an offer has been accepted on a business, what’s next for buyer and seller?
There are now some steps that need to be followed by the buyer and seller to ensure a successful transaction. It’s an exciting time that can also be stressful for both parties. Since an offer has been accepted, much more information about the business can flow from seller to buyer. The buyer will want to learn a great deal more about the business operations and will also want to verify financial records.
The buyer’s list of items for discovery will vary in size and detail depending on the size of the transaction, the concerns of the buyer, and the thoroughness of the seller’s recordkeeping. Every deal is different and the detail required by the buyer is specific to the contemplated purchase.
Likely, the first thing a buyer will want to verify is the financial statements and net owner benefit of the business. The buyer may request copies of bank statements, review the general ledger and the QuickBooks files, and sample related source documents. The seller will need to be as forthcoming as possible to prove that financial statements are accurate to the comfort level of the buyer. Updated and accurate financial statements will also be required for the bank to approve a loan for the buyer.
It is very typical for a buyer to have their attorney and accountant involved in due diligence. The seller can either deal with these advisors directly or have their own advisors assist in answering questions. Typically, the most sensitive information, such as customer and vendor lists and pricing strategy, are revealed at the very end of due diligence, perhaps after lender approval has been secured.
To lessen disruption during this due diligence period, disclosure of the sale of the business is usually made to customers, suppliers, or employees only after the closing of the transaction has taken place.
Contact any one of our Apex Business Advisors for help with buying or selling a business.
**Watch for an email invitation early next week to register for our next seminar on September 24th to discuss the due diligence process.
Doug Hubler
President
