This blog series was inspired by our recent interview between Pete Gatt from Emanda Alexander Spoljar from Parks & Gardens
When getting ready to sell a business, you’ll always hear advisors and friends bang on about skeletons in the closet. But I guess you’re thinking, that sounds great and I have a few things that I may need to disclose but I don’t know what matters?
Here are some things to consider when taking a look at what a buyer might interrogate you on when it comes time to sell:
1. Financial Irregularities
Buyers will scrutinise your financials closely, so any discrepancies or irregularities are likely to be red flags. This includes anything from unexplained expenses to inconsistent revenue reporting. Ensure your financial statements are clean, accurate, and up to date. If there are any past issues, be upfront and have explanations ready.
2. Legal Issues
Whether it’s pending lawsuits, unresolved disputes, or compliance violations, legal troubles can significantly impact the value and attractiveness of your business. Buyers will want to know if there are any ongoing or potential legal issues that could pose a risk. It’s better to address these issues head-on rather than letting them surface during due diligence.
3. Customer Contracts and Relationships
Your customer base is often one of the most valuable assets of your business. Buyers will want to understand the stability and longevity of your customer relationships. Ensure that your key customer contracts are in good standing and that there are no hidden risks, such as contracts nearing expiration or customers that are dissatisfied.
4. Employee and HR Matters
Buyers will look at your workforce and assess potential liabilities. This includes understanding employee contracts, compensation structures, and any existing disputes. If you have key employees who are critical to the business, make sure there are retention plans in place to ensure a smooth transition.
5. Intellectual Property and Technology
If your business relies on proprietary technology or intellectual property (IP), buyers will want to ensure that these assets are well-protected. This includes making sure all IP is properly registered, free of infringement claims, and that you have clear ownership. Additionally, any potential technical debt in your software or systems should be disclosed and addressed.
6. Supplier and Vendor Relationships
Strong supplier and vendor relationships can be crucial to your business’s operations. Buyers will examine these relationships to ensure they are stable and not at risk of disruption. Be prepared to provide details about your key suppliers, their contract terms, and any potential risks in the supply chain.
7. Environmental and Social Governance (ESG) Factors
ESG concerns are becoming increasingly important to buyers, especially for companies in industries that are under scrutiny for environmental impact. Ensure that your business complies with relevant regulations and that any past issues are addressed. Buyers will appreciate transparency and proactive efforts in this area.
8. Historical Business Performance
Buyers will analyse past business performance to forecast future potential. Be prepared to explain any anomalies in historical financial performance, such as dips in revenue or unexpected expenses. Buyers are looking for consistent growth or, at the very least, a clear and plausible explanation for any past challenges.
9. Reputational Risks
In today’s connected world, a business’s reputation can be one of its most valuable assets—or its biggest liabilities. Buyers will likely perform their own research into your business’s public perception. Any past PR issues, negative reviews, or bad press should be acknowledged and mitigated where possible.
10. Contingent Liabilities
Contingent liabilities are potential obligations that could arise depending on the outcome of future events. Examples include pending litigation or environmental cleanup costs. These can be difficult to quantify but can pose significant risks. Buyers will want to know about these, and you should have a plan in place to address or mitigate them.
Need help understanding how your company would stack up during Due Diligence?
https://emanda.au/contact-us/
