Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

Selling Your Business? Tips for Surviving Due Diligence

Author: Dan Brecher

Date: June 2, 2015

Key Contacts

Back

First-time business owners are often surprised to learn that finding a potential buyer and negotiating the key terms of the sale are just the first steps in the process of selling a business.

First-time business owners are often surprised to learn that finding a potential buyer and negotiating the key terms of the sale are just the first steps in the process of selling a business.The due diligence process, in which the buyer gathers information about the business prior to consummating the sale, can be the most complicated and time consuming steps to closing the sale.

First-time business owners are often surprised to learn that finding a potential buyer and negotiating the key terms of the sale are just the first steps in the process of selling a business. The due diligence process, in which the buyer gathers information about the business prior to consummating the sale, can be the most complicated and time consuming steps to closing the sale.

While due diligence is often stressful, with proper understanding of the process it becomes far less of an issue. As with most business endeavors, being prepared is half the battle. Below are a few key tips:

Be proactive:

Once you decide to sell your business, it is time to start thinking about due diligence. Buyers will want to examine your financial records, including a current balance sheet, profit and loss statements, tax returns, and accounts payable and receivable, so it’s imperative to have all of your paperwork in order. You will also need to provide information regarding your company’s other cores assets, such as key business contracts, employees, and intellectual property.

Embrace the inevitability:

Buyers will always want to conduct due diligence and obtain as much information as possible about your business. Embracing the process and being as open as possible will not only help due diligence proceed more smoothly, but will also instill confidence in the buyer.

Set parameters:

The due diligence process should be reserved for serious buyers. It is advisable to have a signed letter of intent (LOI) in hand before starting the process. An LOI is an agreement in principle as to certain aspects of the parties’ understandings of what is planned between them so that they can more comfortably move forward in investing the time and energy required to move to contract for the purchase of the business. While in some instances, the parties already have enough information and understanding to include contractual terms, usually the LOI is more about keeping matters confidential and the seller not looking elsewhere for a buyer during the due diligence period. If included in the LOI, exclusivity to the proposed buyer is usually limited to a month or two in duration for the due diligence process before closing on a purchase of a smaller business. To help ensure that the due diligence process does not drag on and cost your business valuable time and money, it is advisable to decide on a timeline with the potential buyer at the outset.

Ensure Confidentiality:

During the due diligence process, you will be required to provide a great deal of information about your business. To prevent the buyer from later using this information to its advantage, particularly if the deal falls through, it is imperative to execute a non-disclosure agreement. The NDA, which can be included as a binding provision in an otherwise non-binding LOI, should expressly state that the use of any proprietary information is limited to the business sale negotiation, that the information is considered confidential and that it shall not be disclosed to others by the proposed buyer. A general listing of what the confidential information is, stamping documents given to the buyer with the word “Confidential” being conspicuous, and stating in cover letters a reminder to the buyer of the confidential nature of the documents are all worthwhile protections to consider.

Limit surprises:

If you have any skeletons in your closet, it is best to disclose them upfront, as the buyer is likely to discover them anyway. Examples include ongoing or potential litigation, weak IP contracts, or outstanding liabilities. By providing the information upfront, you will be able to explain the situation in the most favorable light and avoid creating an atmosphere of distrust.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Corporate Consolidation and Antitrust Issues in Mergers post image

Corporate Consolidation and Antitrust Issues in Mergers

Corporate consolidation involves two or more businesses merging to become a single larger entity. The result is often a stronger and more competitive company that can better navigate today’s competitive marketplace. What Is Corporate Consolidation? Corporate consolidation closely resembles a basic merger transaction. The primary difference is that a consolidation creates an entirely new business […]

Author: Dan Brecher

Link to post with title - "Corporate Consolidation and Antitrust Issues in Mergers"
What is Business Law and Why Is it Important? post image

What is Business Law and Why Is it Important?

Business law plays a critical role in nearly every aspect of running a successful enterprise, from negotiating a commercial lease to drafting employee policies to fulfilling corporate disclosure obligations. Understanding what is business law and your legal obligations can help your business run smoothly and build productive relationships with clients, business partners, regulators, and others. […]

Author: Dan Brecher

Link to post with title - "What is Business Law and Why Is it Important?"
Corporate Transactions: Best Practices for Successful Deals post image

Corporate Transactions: Best Practices for Successful Deals

Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]

Author: Dan Brecher

Link to post with title - "Corporate Transactions: Best Practices for Successful Deals"
How to Conduct a Fair and Legal Employee Termination in 2025 post image

How to Conduct a Fair and Legal Employee Termination in 2025

Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]

Author: Angela A. Turiano

Link to post with title - "How to Conduct a Fair and Legal Employee Termination in 2025"
Admin Dissolution for Annual Report: What You Need to Know post image

Admin Dissolution for Annual Report: What You Need to Know

While filing annual reports may seem like a nuisance, failing to do so can have significant ramifications. These include fines, reputational harm, and interruption of your business operations. In basic terms, “admin dissolution for annual report” means that a company is dissolved by the government. This happens because it failed to submit its annual report […]

Author: Dan Brecher

Link to post with title - "Admin Dissolution for Annual Report: What You Need to Know"
What Is Antitrust Litigation Law? post image

What Is Antitrust Litigation Law?

Antitrust laws are designed to ensure that businesses compete fairly. There are three federal antitrust laws that businesses must navigate. These include the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. States also have their own antitrust regimes. These may vary from federal regulations. Understanding antitrust litigation helps businesses navigate these complex […]

Author: Robert E. Levy

Link to post with title - "What Is Antitrust Litigation Law?"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form. By providing a telephone number and submitting this form you are consenting to be contacted by SMS text message. Message & data rates may apply. Message frequency may vary. You can reply STOP to opt-out of further messaging.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!