The Importance of Sell-Side Due Diligence
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The process of starting and growing a business can be arduous, time-consuming, and uncertain, yet it can also be one of the most rewarding. The same can be said for when it comes time to sell your business as well. Whether market conditions or professional situations dictate, seeing your business through the transaction life-cycle can be just as challenging and unnerving as the day you began.
With high quality, unbiased sell-side due diligence, you can approach the sales process with a clear understanding of your business' value, and be able to confidently address any financial, operational, or tax issues brought to light by potential buyers.
Benefits of Sell Side Due Diligence
An increasingly popular aspect of M&A deals, sell-side due diligence can positively affect the sale of your business by streamlining the process, clarifying and highlighting your financial position, and preparing you for any red flags that may be brought to light during negotiations. Consider these benefits for your management team:
Increased Transparency - thorough due diligence shows a certain level of credibility in the seller by providing more detailed information to prospective parties. Gaining the trust of a potential buyer can also allow the transaction process to move more smoothly and efficiently.
Identify Operational Improvements - analyzing operations with a critical eye allows you to identify and improve upon weaker areas of your business, which often result in cost savings or revenue enhancements. Such discoveries can identify positive adjustments to EBITDA or normalization adjustments leading to a higher sales price.
Reduced Risk - by identifying any financial, tax, or operational concerns prior to the sales process, you are able to either address and correct these issues or determine how to best present them to a buyer and prepare your response. When issues of contention are first brought to light by the buy-side, you risk the potential for a lower transaction price or broken deal.
Importance of Quality Sell-Side Due Diligence
Enlisting the services of a qualified advisor to perform sell-side due diligence is meant to drive valuations higher and adequately prepare the business owner for a rigorous sale process. To highlight the importance of quality sell-side due diligence, consider:
Buyers will generally seek greater valuation adjustments for earnings or accounting issues discovered during buy-side due diligence.
When engaging with multiple buyers, high quality due diligence reports provide you with leverage to work quickly through each parties’ requests, saving valuable time for your management team.
If your company does not have audited financial statements, buyers may accept sell-side due diligence reports as a suitable alternative. As compared to obtaining audited prior-period financial statements, sell-side due diligence reports are typically compiled quicker and at a lower cost to your business.
Sell-side due diligence is prepared on your timetable ahead of the sales process, and not on that of an aggressive buyer with numerous requests. If you have a smaller accounting staff, a proper due diligence report allows your team to enter a transaction prepared while staying up to date with their normal day-to-day responsibilities.
Conclusion
When considering the sale of your business, sell-side due diligence is an investment in achieving the higher valuations you deserve. High quality due diligence you can deliver to prospective buyers before negotiations begin increases your management team’s credibility and allows you to proceed through the transaction prepared and informed. With the help of qualified advisors, you can efficiently manage the sale of your business with seasoned and sophisticated buyers.
Contact
Michael E. O'Heir, CPA, CVA | moheir@themedcpa.com
MedCPA is a boutique accounting firm located in Towson, MD offering a broad range of accounting, valuation, and M&A advisory services to healthcare organizations with a specialization in medical and dental providers.
