6 EASY STEPS TO SELLING A BUSINESS
STEP 5 – DUE DILIGENCE
Once the offer is accepted by both the Buyer and Seller, the Due Diligence commences. Due Diligence is an important step in the sale process and involves examining the records of the business so the Buyers are able to verify the validity of financial and operational information.
Due diligence normally occurs once you and the Buyer have signed an agreement to purchase which is subject to conditions. The Seller then gives the Buyer access to all business data, including financials, sales figures, personnel records and customer data.
TYPICAL ISSUES CHECKED IN DUE DILIGENCE
The process involves examining the financial statements, balance sheets, income statements, and cash flow statements if available, as well as recent years tax returns to determine:
- Full year-end financials for three years
- BAS statements for three years
- Copy of lease and any variations
- Plant list and depreciation schedule
- Copies of PAYG summaries for three years
- If legal agreements such as licences, permits, insurance policies, and documents related to intellectual property, franchise agreements, contracts with suppliers and clients are in good order.
- Employees: Awards, wage and salary information, superannuation payment records. Whether there any staff grievances
- Operations: List of suppliers and customers – an operations manual is handy
- The business’s reliance/diversification of suppliers and clients
- Discussion on potential future growth
Due diligence is largely the Buyers task and the Buyers expense, but you should be aware that you should co-operate in the process and there may be some expense incurred if your accountant has to liaise with the Buyers accountant. If due diligence proves unsatisfactory, then it is common for the deposit to be refunded and GMO will then seek to find you another Buyer after the issues with due diligence have been considered by you, your accountant and with GMO.
Far more likely is that due diligence, finance and lease conditions are all satisfied and you now are ready to exit ownership of the business and proceed to sale.