Due Diligence, what's it all about?

Buying and selling a business can be a lengthy but exciting process and here at Barker Business, we strive to make that process as smooth and seamless as possible. Once a Sale & Purchase Agreement has been agreed upon and signed by both the seller and buyer, the Due Diligence period will commence.

Part of this process will include the buyer wanting to gain an understanding around the specifics of what it is they are buying. They will want to review and verify information and documentation about the business to make sure the business stacks up and worth the seller's asking price. Sometimes they may ask for additional information, especially if it has been withheld due to sensitivity.

As a business owner, you may be wondering where to start, especially if this is the first business you have sold. Our team of Business Brokers are experts in assisting throughout this period and below is some guidance on how to prepare for DD and what the process generally looks like once it's underway.

Getting prepared for the Due Diligence process -

There are a number of variables that will determine how long the buyer will need in order to complete DD. This might include the nature of the transaction, the value of the business, third party agreements that need to be reached and so on.

To help assess the buyer if they are purchasing a quality business, they will most likely want to review the following:

• Full set of accounts for the last 3 years
• Year to date internal accounts
• GST returns
• Budgets or forecasts
• List of assets / depreciation schedule
• Stock
• Staff / contractor and payroll lists
• Supplier agreements / lists
• Customer agreements / lists
• Details of any IP ownership
• The premises

This list can vary depending on the individual needs of the parties involved and the size of the business. This list is merely a guide and we advise that anyone purchasing a business to use a professional advisor such as their accountant.

As the business seller, it might pay to start gathering some of this useful information in the early stages of sale. This preparation will ensure you are ready to pass this information over to the buyer when the DD process gets underway.

If the buyer wants to come and visit your business premises and you’re worried about staff being present, arrange a time with your Business Broker and seller to meet outside of business hours for a site visit.

Once they buyer is underway with DD, they may ask for additional information or ask questions which haven't yet been asked, or even answered. As a seller, you should do your best to ensure no stone is left unturned and a good way to do this is to keep a record of questions and answers plus documents supplied which is kept up to date throughout the process and all parties have an accurate copy. This will allow the buyer and seller to easily see the questions and answers you have both submitted.

Due Diligence is now satisfied, now what?

It is very common that a Due Diligence clause will be included in the Sale & Purchase Agreement however there will also likely be additional clauses that also need to be satisfied such as Landlord approval, vendor's assistance period, deposit details, staff transfers and so on.

Once the buyer is satisfied that DD is complete, this clause is now considered fulfilled. Once all the clauses in the Agreement have been satisfied, the deal needs to be declared 'unconditional' and your Business Broker's agency will need to be notified. If you are using a Solicitor, you will need to instruct them to give written notification that the sale is now unconditional, however if you are not using Solicitor you will need to do this yourself. Barker Business Brokerage will issue a form to both parties to confirm that the sale is unconditional and it needs to be signed and returned.

There will be a time frame set out in the Sale & Purchase Agreement between the unconditional date and the settlement date. Settlement is when the keys are handed over and the business is now under new ownership.

Key Takeaways

For some people, buying and selling a business is a first-time experience and it may seem a bit scary. For others, this might be one of many transactions however what you will always get from us is professional and dedicated service. Don't forget, we've been selling businesses for a very long time now and because that’s all we do - we're very good at it.

Whether you need a lot of hand holding and advise or you prefer your Broker to just be at arm’s length, their involvement is completely up to you and they will work with you to achieve the best possible outcome.

For many, a business is like their baby, it's taken years to get it to where it is today - the sacrifices, the sleepless nights, the strained relationships... we've seen it all so when it’s time to sell, you want to know you're in the best hands possible.

And this goes for buyers too, taking the plunge into business ownership for the first time is a huge step. We want to ensure you're making the best decision and will guide you through the process as much as you need.

What is Due Diligence?

Once a Sale & Purchase Agreement has been entered into, the buyer will need an agreed period to conduct Due Diligence. This is where they will gain a better understanding as to what it is they are buying - this investigation process called Due Diligence.

How can I get prepared for DD?

Buyer – You've read through the Information Memorandum, met the Vendor and now entered into a S&P Agreement. If there is anything further you'd like to know that was not included in the IM, now is the time to ask.

Seller – You’ve listed your business with us, it's advertised online and your Broker is presenting interest to you. Now is a good time to prepare documentation that would be useful to hand over to the buyer when the DD process commences to help speed things along.

What happens once DD is complete?

Once everyone is satisfied that DD is complete along with all other clauses in the S&P Agreement, you'll need to make sure Barker Business is notified of this, either by you or an appointed nominee such as your Solicitor.

If you have any queries around conducting Due Diligence or anything business sales related, please get in touch with us today on 0800 SELLBIZ, 09 448 1285 or email us info@barkerbusiness.co.nz.