Ensure your business is ready for this key due diligence step
Company owners often think of due diligence as a time for the lawyers from the acquirer to probe your business. Although this is certainly part of the exit process, it’s not all of it. What surprises the seller often is when they hear their potential acquirer is requiring to speak to a variety of the selling company’s customers ahead of the transaction officially closing. Ask yourself this question, when I sell my business one day, am I highly confident that I will be able to present a good cross section of my customers that I know will speak highly of my company?
In many transactions, acquirers like to speak to customers of the selling company anywhere from 2 to 10 weeks prior to the official closing of the transaction. The acquirer prefers doing these as early as possible in the due diligence process but as the seller, you will want these voice of the customer calls to be made much closer to the final transaction closing date. The timing of when these calls will be conducted is generally a deal negotiating point between acquirer and seller.
At least 1-2 years prior to selling your business, you’ll want to give thought as to who you will one day present to the acquirer for conducting their voice of the customer diligence work. Have you established a strong relationship with customers so as to give you the confidence they will speak highly of your company when the acquirer speaks with them? The acquirer will ask your customer questions like; why do you select this company to do business with? How is this company better than alternatives you have available? Do your plans include continuing to purchase from this company going forward? Where would you like to see the company improve or possibly expand their products/services?
The bottom line is this. Preparing for your future euphoric exit event takes years to do properly as there are many facets to the preparation. One of these relates to establishing a strong working rapport with a cross section of your customers so that when exit due diligence time arrives, you’ll be confident in your preparation for this key step. Being ill-prepared for this step could be a reason they decide to back away from the transaction or try and negotiate a lower valuation…both bad outcomes but with the right exit preparation planning, can be easily avoided.
