Once you get to the stage of your deal where you have a signed letter of intent, you may already be feeling a sense of relief that your deal is near finalization. But remember that the due diligence stage is typically yet to come. This stage includes everything from financial and legal investigations to a review of specific information regarding how a business is run.  

The due diligence process can be quite comprehensive, and it often reveals some surprises. Because it is important for sellers to know what to prepare and for buyers to know what to look for, let’s examine some of the categories that are reviewed during this process. 

Trademarks and Copyrights 

Will assets like trademarks, patents, and copyrights be transferred? This is an issue that has prevented some deals from ending successfully. Due to the fact that trademarks, patents, and copyrights are often essential parts of a business, they cannot be overlooked.  

Products and Industry  

Due diligence will likely include analysis of product lines and the respective percentage of sales that they make up. If the business in question is a manufacturing business, then all aspects of the process will be examined. For example, buyers will be looking for age and value of the equipment, information about suppliers, and more.  

Financial Statements 

Financial statements should be given careful consideration during due diligence. Current statements and incoming sales should be meticulously reviewed. Review of financial information will also include balance sheets. Is there bad debt? Is there work in progress? These kinds of issues will be evaluated.  

Customer Lists

If you are selling a business, you should be prepared to share lists of major customers. Buyers may also want to compare your market share to that of your competitors.

Key Employees

Buyers should be looking for information on key personnel, as well as data on any potential employee turnover. If you are selling a business, it’s important to try to fix any staffing problems that might interfere with a buyer’s ability to properly run the business.

A key goal of the due diligence process is to find potential problems, such as liabilities and contractual issues. But on the upside, due diligence also includes investigation into assets and benefits. The end result should be that the selling price of the business is justified and both parties walk away satisfied. As stated above, it is common for problems and issues to pop up during due diligence, so it’s important to stay proactive and be open to negotiation until the deal is finalized.