A future euphoric exit event requires this critical step
Making the decision to sell your company one day is certainly an important one. An equally important decision is will you be able to sell your company…meaning can you successfully withstand an acquirer’s probe, known as due diligence. We find in working with clients that many are well-run companies but are not exit ready. They need help in identifying what gaps exist that will keep them from achieving their euphoric exit event and a key step as part of this is to conduct a due diligence dress rehearsal.
Use time as a friend in conducting your company due diligence dress rehearsal to ensure you can smoothly and successfully undergo third party scrutiny. With our clients, we look to conduct a due diligence dress rehearsal 1 to 2 years prior to beginning the exit process. The reason for this advance prep time is it’s common to find issues that may require upwards of a year to address.
Here are some examples of dress rehearsal items you’ll want to ensure you’re ready for acquirers to probe:
- Are your company ownership legal documents accurate and current? Same with all legal documents associated with any real estate you own that will be included in the company sale?
- If you lease real estate in the operation of your business, are you clear on what your lease agreement calls for in transferring the lease to a new company owner?
- Are your legal documents current pertaining to proof of protection and ownership of company name, brand names, trademarks, website domains?
- If your company has intellectual property such as patents or trade secrets, are these well documented and protected and able to be transferred to the acquirer?
- Are your company financial statements all accurate and current for at least the past 3 years?
- Is your company profit & loss statement formatted to your industry standards? (example: gross margin can be calculated differently industry to industry)
- Are all customer and vendor agreements/contracts properly executed (both parties signed)?
- Do any customer or vendor agreements have “change of control” clauses that you have to adhere to prior to selling your company?
- Are all your company procedures and policies well documented as they relate to fulfilling your product or service? If you produce a widget, are all bills of materials accurate?
- Are all employee documents ready for third party review – employee handbook, benefits plans, employee offer letters/agreements, organization charts, etc.?
- Are company operating systems scalable and with proper security protections? Are all licenses current for software being used across the company?
- If your company has product inventory, are inventory controls and reporting effectively in place?
- Is your company sales opportunity pipeline being used by your team and reflective of both current and future growth opportunities?
These are just some examples of areas that you’ll need to have ready for an acquirer to probe during their due diligence. Leverage our Yosemite Associates Business Diagnostic Due Diligence Dress Rehearsal Tool to facilitate your dress rehearsal. There are many exit planning steps you’ll want to take to reach your future euphoric exit event. Make a due diligence dress rehearsal one of these critical steps.
