A Business Advisor’s Tips for Seamless Due Diligence

Wayne Pinnell04.23.18

Generational family transfers, private equity investors, a sale to a new owner or strategic investor, going public… Whether the result of your long-term strategic plan or being faced with a sudden opportunity to sell, a successful business is likely to undergo due diligence at some point. The onslaught of due diligence from a potential buyer can overwhelm your business if you’re not ready for the level of scrutiny your organization will receive.

Here are some key suggestions from our business advisors to prepare for due diligence to help the process proceed smoothly.

Staff positions strategically

Ensure that you have the right people overseeing all essential internal and advisory roles. Due diligence digs deeply into numbers and performance, so you’ll need to make sure that department heads, executives, and external teams are prepared to deliver pertinent information without disrupting business operations. Sole owners should have strong management in place that will allow for a seamless exit upon sale.

Ensure your records are complete and accessible

Record retention issues can cause major snags during due diligence. Maintain a complete set of well-organized data, supported by a reliable backup system. Whether you receive a request for internal records or information from any of your business advisory service partners, your data should be readily available and easy to navigate.

Maintain current compliance

Buyers or sellers will want to see evidence that you are current on all compliance issues, including income tax filing, payroll taxes, sales taxes, insurance, and other regulatory reports, such as FDA or EPA filings. They will also want evidence that your employee benefit plans (things like 401(k)s and profit-sharing plans) are being managed consistently and within all state and federal guidelines.

Don’t allow due diligence to become a distraction

Just because you’re undergoing a due diligence investigation doesn’t mean that you can put your organization on hold. Business must continue to operate as usual. Ensuring that you have the right resources and information available at your fingertips frees up your staff to continue to focus on their daily responsibilities.

Coordinate your business advisors

When you are faced with a significant business event that requires due diligence, align your external business advisors to make sure everyone is working together. Your attorney, CPA, investment banker, wealth manager, and any other teams that provide critical business advisory services are all dedicated to helping you achieve your best outcome. Loop them in early so they, too, can prepare materials on their end and contribute to your success.

Start planning early

Get organized well before there is any need to conduct due diligence on your organization. Thinking about your exit plan, even if it is on the distant horizon, will prepare you for this rigorous process once it’s upon you. Maintain reliable operating processes, data systems, technology and accounting systems. Be as efficient and effective as possible with the entire range of procedures that apply to your business, internally and with your customers and vendors externally. Ideally, yours should be a solid, well-run organization at every point in your company’s lifecycle.

As with any important business transaction, it’s always better to get organized well in advance, so you’re not left scrambling. Don’t wait until you’re facing (or faced with) a transaction to get your operations, records and business processes in order. Documentation is one thing, but having a company that already runs efficiently and sustainably is better.

For information about how Haskell & White can help you prepare for due diligence, contact us today.