WHAT DO BUYERS LOOK FOR DURING DUE DILIGENCE?
We can say that due diligence is like performing a home inspection before buying a house to understand it better. Of course, you can buy a house without assessing, but you are taking a big risk by not having a look under the roof first. So as a seller, it’s also worth recognizing what buyers are going to look for when they study your company. They will pay a lower price if they find any red flags. So, read on to know what to expect in Due Diligence if you sell your company.
1. Financial
Financial due diligence has three primary purposes:
- Determining whether the projections that the seller provides for future financial performance are supportable or not
- Confirming the historical financial results as previously presented by the seller to the buyer before signing the letter of intent
- Determining if the company’s financial records and systems are adequate to support future growth.
Follow these steps to conduct due diligence
- Examine annual and quarterly financial information
- Review sales and gross profits
- Evaluate the accounts receivable
- Review past projections and results
- Look at future projections
- Get a history of pricing policies and past increases
- Ask for all business tax details
- Review the summary of debts and their terms
- Prepare a summary of all current investors
- Get an overview of all shareholders