How To Conduct Effective Reverse Due Diligence: Strategies for Success
posted 28th September 2023
Reverse Due Diligence (RDD or Sell-Side Due Diligence) is the process of identifying and assessing the value of your business. As well as revealing both the strengths and weaknesses of the business to potential buyers, it also gives you the opportunity to address any issues prior to selling.
Just like the due diligence process is essential in supporting buyers to get the most value out of their transactions, RDD is equally important for sellers and can really maximise the value of their business. Here are some of the key elements to conducting effective RDD.
Think Like a Buyer
Buyers are likely to have many questions for the business they are looking to buy, as well as specific criteria they are looking to fulfil, and documents they will require access to when carrying out due diligence.
To make sure your business is prepared, review all the necessary documentation and check whether you have easy access to the most up-to-date versions of your documents, and that they contain all the necessary attachments, schedules, and signatures.
If you were in the position of buying a business, think about what questions you would have, and what documents you would want to receive. If you can't answer any of the questions, you should think about how you can make changes and improvements to address this.
Being well-organised ahead of time reduces stress for you and reduces delays for the buyer that may be off-putting, ultimately putting you in the best position possible to move forward.
Delegation Is Key
Selling a business requires a lot of work, and it can be challenging to juggle the selling process as well as the usual day-to-day operations. However, delegating certain tasks and responsibilities to teams or individuals within your company can save you time and make the process more efficient.
Creating a clear workflow chart for employees involved in the sale can boost efficiency and make for a smoother RDD and selling process.
Carry Out a Thorough Financial Assessment
Having a solid set of financials is crucial when selling your business, and conducting a thorough financial assessment can produce valuable insights on how to improve your business. When conducting a financial assessment during RDD, ask questions such as:
• How does your working capital to sales ratio compare to similar businesses?
• How do your margins compare?
• Could you obtain finance at a lower rate than you are currently?
• Are there any cash flow issues in your business that could be resolved?
An accountancy team with expertise in corporate finance is a big help in carrying out a thorough financial assessment, preparing your business for sale, and reducing any risks that may cause the sale to fall through.
Protect Your Data
Deals sometimes fall through, and while the right processes and support will reduce the risk of this happening, protecting your data if the worst does occur will mean that you have everything already prepared for the next buyer. It also means you won't have to start the whole RDD process over again.
Safeguarding your documents can also be very advantageous if a deal is complete but problems arise later, as you will be able to refer to the necessary information quickly.
Turn to Experts
While the above tips are useful examples of good practice when selling your business, there are aspects of the sale process that benefit from expert advice.
GS Verde's multidiscipline team comprises experts in law, accountancy, tax and corporate finance who can ensure your data is protected, perform financial assessments, uncover any risk areas and resolve them, and update any contracts, policies and T&Cs to make sure they comply with current legislation.
When buy-side due diligence is conducted, you can rest assured that any risks have been brought to light and that your business is in the best shape it can be when it comes to negotiating the deal.
For more information, visit our Sell a Business page, or our Employee Ownership or Private Equity pages to learn more about other types of business sale.
Contact GS Verde's multidiscipline team to learn more about what you need to achieve a successful business sale from end to end.