Preparing your Business for Sale – Vendor Due Diligence

When creating and establishing a business, the last thing any business owner wants to think about is developing an exit strategy. And yet, doing so early – even before your business is up and running – may save you a great deal of time, money and heartache down the track.

Every business owner will exit a business at some stage, either by selling, merging or otherwise dismantling the enterprise. Having an exit strategy in place, and monitoring your business from the perspective of a potential buyer is crucial to maximising the value of your business and its saleability in the future.

It is important to do vendor due diligence continually throughout the business cycle in order to keep your business affairs in order. Specific issues to focus on early include:-

  1. Structure – does the structure of the business allow for a quick and easy transfer of assets?
  1. Intellectual Property – are the IP rights secured and held by a readily transferrable entity?
  1. Governance and Procedures –exit procedures in particular can reduce the perception of risk and buyer concerns.
  1. Financials – are corporate and private affairs adequately recorded and demarked?
  1. Key Contracts – are key contracts adequately recorded? Handshake deals may work in the day-to-day running of a business, but they will not be enough to satisfy potential buyers.
  1. Data Retention and Security – information gaps and record management may create liability or bring the credibility of business records into question.

When negotiating a business sale, every loose end, glitch, lack of transparency or non-complying aspect of the business will provide an excuse for the buyer to negotiate a lower purchase price. Buyers are naturally sceptical, so maintaining clear asset and risk management policies, procedures and compliance records can help to displace uncertainty and eliminate any grounds for leveraging down a negotiated price.

If you are looking to start a business, or if you run an established business already, it is important to look ahead and plan your exit strategy today. You should engage financial advisors and seek legal advice as early as possible to ensure any future exit from your business is easy, viable and efficient.

Speak to an expert at Tetlow Legal to learn more about future-proofing your business and maintaining vendor due diligence on a day-to-day basis. Contact Emma Bragg or Brian Tetlow on (02) 6140 6236, or email emma@tetlowlegal.com.au or brian@tetlowlegal.com.au.