Pre-emptive due diligence performed by the seller is a smart way for business owners and their team of M&A advisors to ensure the chances of receiving favorable price and terms in their deal. Sell-side due diligence can uncover potential issues and “deal killers” before potential buyers do, giving the business owner time to properly address these concerns before engaging in a sales process. Engaging an experienced M&A team on the sell-side can reduce the risk of the deal failing, alleviate stress on the business owner, and increase the chances for a successful transaction.

Here are 4 common problems that due diligence can uncover for a business owner.

1. Employee Bandwidth Issues

In smaller businesses, there usually isn’t enough bandwidth or capacity to respond to the buyer’s due diligence requests in a timely manner, as they are likely occupied with their day-to-day responsibilities. In a sell-side process, the advisory team can provide detailed information about financial trends, supporting schedules, and present the information in the best possible light and in a format buy-side due diligence teams require.

2. “My Tax Guy”

The business owner’s trusted accountant is often the external CPA. Unfortunately, some CPAs aren’t able to speak to the business’s financial processes, day-to-day bookkeeping, and accounting methodologies. In short, they aren’t very helpful during a due diligence process and might do more harm than good with buyers. By hiring a sell-side provider, the business owner can ensure they’re prepared to speak comprehensively about the business’s financials.

3. Weak Data Systems

The business owner might be using several data systems; outdated systems; or, worse yet, no systems. Getting access to detailed and accurate financial information will be priority number one for a buy-side team. The value of a sell-side process is this information is fully vetted before a buy-side process starts. In sharing information with buyers, the information needs to be complete, organized, and compiled in a way that can be easily digested. 

4. Multiple Entities and No Consolidation

As their business evolved, the owners might have started additional entities, which are now being contemplated in a potential sale. It is likely that these entities have never been consolidated and intercompany transactions remain on the financial statements. A sell-side process can determine the potential earnings impact of all the entities and provide a buyer with a consolidated view of what is being acquired. For sellers, hiring an experienced M&A advisor to assist with sell-side due diligence and business transition planning can ensure the M&A process will be as successful as possible.

 

About Madison Street Capital

Madison Street Capital is an international investment banking firm committed to integrity, excellence, leadership and service in delivering corporate financial advisory services to publicly and privately held businesses.

Over the years we have helped clients in hundreds of industry verticals reach their goal in a timely manner. Our experience and understanding in areas of corporate finance and corporate governance is the reason we are a leading provider of financial advisory services, M&A, and valuations. With offices in North America, Asia and Africa, we have adopted a global view that gives equal emphasis to local business relationships and networks.