As part of their due diligence, buyers usually employ accountants to check the numbers and attorneys to look at legal issues and draft or review documents. Buyers may seek out other professionals to evaluate the business’ operations. The prudent buyer is also looking behind the scenes to ensure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent.
Knowing what the cautious buyer may be investigating can be helpful for a seller. A business intermediary professional can skillfully assist a seller in discerning these issues, as they are experts when it comes to what buyers are looking for when considering a company to purchase.
Here are some examples of things a prudent buyer will be checking:
Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies.
Do the gross margins for the past several years suggest a lack of control, price erosion, or other deficiencies?
Has the business used all of its bank credit lines? Does the bank or any creditor have the company on any kind of credit watch?
Does the company have monthly financial statements? Are the annual financials prepared on a timely basis?
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Is the owner constantly interrupted by telephone calls or demands that require immediate attention? This may indicate a business in crisis.
Has the business experienced a lot of management turnover in the past few years?
If there are any employees working in the business, do they take pride in what they do and in the business itself?
What is the inventory turnover? Does the company have too many suppliers?
Is the business in a stagnant or dying market and can it shift gears rapidly to make changes or enter new markets?
Is the business introducing new products or services?
Is the business experiencing loss of market share, especially compared to the competition? Price increases may increase dollar sales, but the real measure is unit sales.
When business owners consider selling, carefully examining the issues outlined above may pay big dividends. It is crucial not only to review these matters, but thoroughly address them by resolving as many issues as possible.