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top 10 tips when selling a business

top 10 tips when selling a business

I was asked recently for my top ten tips when selling a business on a back of a napkin! so here they are, in super short napkin format though much more readable!

Top 10 tips when selling a business

  1. Keep it simple and squeaky clean.
  2. It’s all about the numbers.
  3. Sales and forecasting counts.
  4. Have a Finance Director (FD).
  5. Don’t give them ANY reason to be chipped, ever.
  6. They have to want it. They are buying for their reasons not yours.
  7. It will never go how you want, expect the unexpected.
  8. It’s always a negotiation.
  9. Plan ahead.
  10. Have great professional advisors. Use them as that’s why you are paying them.
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5 ways to discover your potential buyer’s hot buttons!

hot button

Recently I was asked by a business owner how they could find out what their potential buyer’s hot buttons were. That got me thinking about how I would approach it. Having gone though the business sale process already successfully, Knowing what I know now, here are five things that you should try on your ‘target’ in order to glean what are likely to be those hot buttons. These suggestions are listed in no particular order and remember that the potential buyer that you have in mind may not realise that they are on yet!

  1. At your next industry event or exhibition, casually talk to a few of your target potential buyer colleagues. Take them away from their stand by suggesting that you both swap freebies (‘oh I’ve got one at my stand.’) or buy them a drink/snack, and after some small talk, find out what their perception of your business is.
  2. Plan and organise to meet up with the target potential buyer Managing Director over a nice lunch and talk about the  weather, the industry as a whole, their plans, your plans, mutual acquaintances and companies. Mention three things that you love about their business and then ask what they love about yours — remember don’t take any offence if they can’t think of anything or say something negative. It’s all useful information as it gives you a little insight into their perception of you.
  3. Look at your target potential buyer’s filed financial accounts and pay special attention to the shareholding, commentary and notes in those accounts. If they are registered in the UK then this information is available at Companies House and it’s only £1 per document. If your target potential buyer is a publicly listed company, read their annual reports to find out what their strategy is and sometimes they even state if they are looking to acquire in order to grow!
  4. If you know the target potential buyer’s top 3 clients, ring those clients up and find out if they know about your business. In order to protect your identity. You could be calling on behalf of a market research company.
  5. Has your target potential buyer made any recent acquisitions? If so, find out who were the owners/business managers that sold and get in contact with them to find out why they were acquired and what hot buttons their business had. (This suggestion is similar to taking the MD out to a nice lunch).

Hopefully these suggestions get your creative thought processes going and you’ll come up with some more as I’m sure that there are more ways to discover your potential buyer’s hot buttons. What would you do?

 

Joanna Miller helps business owners navigate their way through the start to finish process of selling a business.  Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale

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The five stages of grief when selling a business

business for sale discounted

The source of the five stages of grief

The Kübler-Ross model, commonly referred to as the “five stages of grief” was introduced by Elisabeth Kübler-Ross which was inspired by her work with terminally ill patients. Believe it or not, it also applies to business too and it doesn’t have to only be during the business sale but I found that it was heightened during this time and I certainly experienced these grief stages a number of times during my business sale as we went around six times. Let me share with you one of those times with you now after listing the 5 stages of grief. The five stages are:

  1. Denial
  2. Anger
  3. Bargaining
  4. Depression
  5. Acceptance

Looking back and recognising the five stages of grief

During our business sale cycle we received an offer for the business (subject to contract) from a corporate organisation which had its own internal business acquisition team complete with an acquisitions manager. In the offer letter, it stated the offer / consideration and key assumptions made – such as keeping myself and my business partner on beyond the sale. The price was fair and we went ahead and signed the exclusivity letter which had a completion date within 6 weeks. That meant that the due diligence process had to be wrapped up within 4 weeks. Everything was seemingly going fine, we provided access to our comprehensive data room, had a couple of all day meetings going over financials and forecasted on top of answering hundreds of due diligence questions.

We were busy wrapping up due diligence with three days to go to completion day and our business broker got a call. The Acquisitions Manager informed our business broker that their due diligence had highlighted some concerns they had with our sales forecast and as a result, they tabled a revised offer which was a substantial price chip of over20% of the cash part of the consideration.

When our business broker passed on the news, I was in immediate denial (stage 1) – due diligence had gone well and as I disagreed with how they worked out the price chip, anger (stage 2) started to build up, especially as they said they had no intention to price chip!!  My business partner and I wanted to negotiate aka bargain (stage 3) but our business broker said that there was no room for bargaining and sure enough, within a couple of hours of that phone call, the price cut ‘best and final offer’ letter was in our hands.

I’m sure our 5 stages overlapped with each other and anger with depression (stage 4) set in almost simultaneously because we had no time to let the news sink in and be processed – only a few hours because we wanted to keep the deal alive.  We had no choice but to accept (stage 5) the revised terms (because we were determined to sell the business this fifth time around!) and we had to convince ourselves that it was a good thing that we were still being considered for purchase.

Not a great situation to find yourself in. In hindsight, I’m sure that we would have forced ourselves time to digest the news and slowed down the process in order to consider it with clearer heads and minds if we had the time but hours after receiving a price chip (chunk!) we were then told that the whole deal was off and dead due to cultural differences which sent me spinning around the Kübler-Ross model yet again – within a 12 hour period, it was quite a knockout – however that’s another story!!

Three takeaways

Look the potential buyer in the eye at the start of the process and shake their hand in that there will be no price chips – ideally, get it in writing too if possible.

During the business sale process if you happen to receive negative news, try and acknowledge it and work through the five stages.

And lastly, there is always a choice even if you feel you are backed into a corner. You can always change your mind and there will always be another deal to be had.

Joanna Miller helps business owners navigate their way through the start to finish process of selling a business.  Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale

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Deal fever – learn how to recognise it in order to control it as its going to happen to you!

deal fever

You’re probably wondering what deal fever is. It’s not quite the same thing as the song ‘Fever’, made famous by Peggy Lee but it certainly has echos of it and it happened to me during my business sale – several times!

Recognising Deal Fever

Deal fever is when irrational thoughts start to happen, and decisions are being made based on emotions because your emotions have been caught up in the business sale.

And normally it appears about the same time as when greed decides to make an appearance, which is when you’ve received an indicative offer and your eyes might be as wide as saucers as you’ve reached a milestone of having your business valued in someone else’s eyes.

You start to be carried away by the big numbers being talked about, and you begin to believe that your company is worth more and probably more than what that potential buyer wants. Because he/she definitely wants to buy your business at all costs. See? Notice how the ‘at all costs’ part crept in there? That’s a symptom of deal fever and irrational thinking taking shape.

Another sign of deal fever is when, in your head, you have already started to spend the money that you actually don’t have yet. Catch yourself when that starts to happen and

Coping with Deal Fever

I coped with deal fever by making sure that I had my completed ‘Calculate Walkaway Price Workbook’ to hand and referred to it as often as possible to remind myself of the reasons as to why that was an acceptable number and rationalise that there was no good reason that the price should be five times larger as that multiple was too high and the risk of the deal falling through would be greater.

It helps having an external trusted advisor that has no vested interest and cares for you as an individual with no hidden agenda. When deal fever hits and you think you have to make a decision and you’re running out of time, that’s the perfect time to go have lunch with them and pour out your emotions and thinking. That person will highlight what irrational thoughts and possible decisions you are considering which will help you make the right choice, without deal fever, in the end.

Expect deal fever, its guaranteed to happen, after all we are only human, and it is your own company you’re selling and very tempting monetary figures are placed in front of you. It happened to me. The symptoms of deal fever are trying to rationalise and re-rationalise decisions and choices made. It’s changing your mind a thousand times. It’s thinking about the ‘what if’ scenarios. It’s hindsight kicking into gear after you’ve made a decision that has unexpected consequences; it’s everything while being on the emotional roller-coaster at the same time. Learn to recognise it so you can control it – even if it means ignoring it, I did!

Joanna Miller helps business owners navigate their way through the start to finish process of selling a business.  Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale

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5 Ways to prepare for your Business Sale Completion Day

Business Sale Completion Day

When my lawyer looked at me and said, ‘Kim – congratulations, you’ve successfully completed the deal,’ I felt numb. I was speechless and devoid of any feeling. In fact, if it wasn’t for my body I would have evaporated into the air. I had survived my business sale completion day!

After spending months of negotiating, emotional ups and downs in addition to visualizing my freedom I suppose I never took the time to consider how I’d feel the moment I sold my ½ of my business. I remember signing several pieces of paper, watching my lawyer for cues on what to say and not say.  And I remember thinking how odd it was that my ex-business partner (the person buying me out) was trying to make small talk throughout the completion procedure.

After a few moments of feeling numb, I hugged my solicitor, left his offices, got in my car and still felt numb. I kept telling myself that ‘the transaction occurred…the money is in my bank…I’m out…I’m free, it’s time to celebrate’ yet emotionally I couldn’t feel anything.

Over the next few days, I started to feel again. I was so fearful that the transaction would never occur that I forced myself to remain unemotional about it. And when it did happen I think I went into some sort of emotional shock!

Anyway, that being said, preparing for the actual business sale completion day is worth setting time aside for. And I mean that from an emotional and practical perspective. The night before the big event, consider the following 5 preparation suggestions.

5 Ways to Prepare for your Business Sale Completion Day

1. Packing list.  Some Completion Days can last for days. There are very business times and then there are times when you’ll be sitting around doing nothing. Consider packing clothes, toiletries, special food you like (snacks), a good book to read and anything else to help you throughout the day. Also, prepare your clothes, driving instructions and timings before you go to sleep so that you can wake-up and get to the Completion Offices with the least amount of stress as possible.

2. Negotiation Sticking Points. Are there any outstanding negotiation points that have to be resolved before the deal is done? Where you stand on them? Don’t leave this to chance. Take the time to consider what you will and will not settle for. Visualize various scenarios and focus on how you’d like any sticking points to be resolved. Doing so will better prepare you for the real thing!

3. Completion Day Process. Do you know the stages that are necessary to complete? Many solicitors will tell you that they’ve got everything taken care of, but sometimes it’s nice to know where you are in the process. There’s a load of required documentation and legal papers to sign. If you know the process you can check it off as things happen. By doing so you’ll feel a higher sense of control if you understand what’s actually happening.

4. Consider the post-completion tasks. Usually when entering a Completion Day, many business owners are more interested in completing rather than considering what happens after the deal is done, but keep in mind there are quite a few admin issues to take care of. Things like paying the advisors, diarising future consideration payments and expiry dates for restrictive covenants are just a few. Be prepared to complete, handle after completion tasks AND the next suggestion…

5. Visualising the perfect completion process. It may seem a bit air fairy but you have more chances of getting what you focus on. By focusing on the perfect completion process you’ll train your mind and body as to what you want and how you want it. Furthermore, you might avoid my experience of numbness. Remember to think about the celebration and how you’ll feel once the deal is done and dusted.

This article offers a quick and general outline on how to prepare for your business sale completion day. If you’d like a ‘template’ that will guide you through the whole process, outline what to pack, how to prioritise negotiation points, what will be needed for the post-completion admin in addition to how to visualise a perfect business sale completion day, please check out our pack, “The Seller’s Completion Day Checklist Pack.”

Kim Brown, Co-Founder of Business Wand, helps business owners navigate their way through the start to finish process of selling a business. Her specialty is to help owners cut costs and increase profits prior to sale. To understand how you can sell your business quickly for the highest sales price, purchase the book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”

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How to make sure that you are ready to answer due diligence questions

due diligence questions and answers

due diligence questions and answersSo there you are, you’ve just finished uploading your last document into the virtual data room and ticked off the corresponding item from the list provided to you by your solicitor or business broker.

Time to relax, sit back as you’re now ready to field all questions from potential buyers ….. really?!

How do you really know that you are ready? You could wait until the due diligence questions start coming in or, with better planning, how about doing a practice dry run through?  You’ve got the time now to do this and we’ve got just the thing, our due diligence questions packs. Each pack has 250 unique questions and come from Joanna’s due diligence process so they were all real questions that had to be answered! If you can quickly answer each one by simply quoting the right data room reference or if they aren’t applicable to your type of business and you can just ‘N/A’, you definitely are ready!

It’s really worth doing a practice dry run because when the due diligence questions start to come in thick and fast, you’ll find it easy to bat the answers back. This in turn will free you up to focus on the business sale negotiations and you can concentrate on keeping your business value up.

If you’re wondering what type of questions the packs contain, here are six randomly chosen for you to quickly answer with just your matching data room reference number. If the question is applicable to your business and you haven’t got the reference number readily to hand, now’s the time to add to your data room and use our pack to really make sure you’re all prepared!

  • Sales order book and pipeline, by product/service, rated by percentage likelihood to win new business income, and the expected time frame for each opportunity
  • Analysis of revenue by customer for the last two financial years (including customer names).  Details of financial terms (including commission rates) with top 15 customers for each of product/service
  • Details of any benefits/expenses provided to employees/directors, copies of any PAYE Settlement Agreement and P11D dispensation
  • Sickness absence and staff turnover rate for past 12 months
  • Copies of insurance policies
  • List of customer complaints/warranty claims within the last two years

 

Fielding questions successfully

If your business broker hasn’t mentioned it to you already, you should have an efficient system in place to field all due diligence questions successfully. Make sure that all questions from each potential buyer is entered into their own spreadsheet. This should be done by the buyer’s representative themselves and all questions fielded through one person because there could be a number of people on the buyer’s side carrying out the due diligence. This system provides control and allows you to quickly update it with the necessary answers and upload the latest version to the data room. Date raised, By Whom, Question, Functional area, Data Room reference and commentary should all be column headings.

As your due diligence period moves ahead you’ll find that the same question is asked in a different way by different potential buyers and don’t be surprised if they ask the question without even visiting the data room to see if the answer is there!

The quicker you can demonstrate that you have all the answers to hand, the more confident the potential buyers will become and in understanding your business better, they should realise the value of the business and want to have it even more bringing you one step closer to completion day.

Kim Brown, Co-Founder of Business Wand, helps business owners navigate their way through the start to finish process of selling a business. Her specialty is to help owners cut costs and increase profits prior to sale. To understand how you can sell your business quickly for the highest sales price, purchase the book, “How To Sell A Business: The #1 Guide to maximising your company value and achieving a quick business sale”

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Getting to grips with the data room 101

Data Room 101

Data room 101

As part of every business sale process there will be a period of due diligence. During this period, potential buyers will want to make sure that they are really actually buying the business that they think they are! Part of this will mean that all your company documentation and processes will be looked over. All of this information goes into a data room. Before the days of software used to be a physical room with restricted access. Nowadays the same process is replicated, however, software has replaced the physical room. If your business is less than £1million, it’s likely to be done without any special data room software. However for companies which are larger, expect to use data room software.

Time to get cracking!

Instead of waiting to compile the contents of your data room when the buyer starts asking for information. I strongly recommend that you start as soon as possible. This will help make it less stressful as dealing with demanding questions could take its toll, especially if 10 questions are coming at you from 3 different buyers. You don’t need to spend vast amounts of money on the software, just use Dropbox or box.net to get going. Make sure its got a strong password and if storing the information on your laptop make sure that’s secure too.

Data room software explained

There are a number of companies that offer data room software solutions that include helping you set up your data room (for a fee) and helping you keep it up-to-date. Focusing on the software side of things, good data room software features must include:

  • user login and access management – restrict who has access to what and for how long
  • version control – so changes to documents can be tracked
  • document restrictions – such as the ability to limit the document to be viewed online only and disable print options
  • reporting – information and statistics on the documents as well as who’s accessed those documents

It can get quite expensive and I mean into the hundreds if not thousands of pounds as these data room companies use pricing models that can be per page upload and per page stored in the data room. We go into this in much more depth in our ‘Creating the Data Room Pack‘. That’s why its good to have a ‘test’ data room so you can see how many documents you are storing and can estimate the cost of having the data room for the duration of your business sale.

Understanding the data room structure

Having the right data room structure will help find supporting documentation quickly and keep you organised. Every component in the data room will have a numbering scheme – this applies to both folders and files so check out our top-level data room structure sample in our free document samples section.   Filename conventions are also important especially if they are date related.

That was easy, what’s next?

Now that you’re all up to speed with the data room, its software, and have set up your data room structure. It’s time to collate all the information that goes into it. That’s where our Preparing for Due Diligence Checklist Pack  comes in. The checklist makes sure that you store all your business’ documentation, in the right structure ready for those potential buyers. It’s tough work, but going through this process will help streamline your business as you’ll find quicker and better ways in extracting the information from the business for the data room.

It’s never too early to start – so time to get started!

Joanna Miller helps business owners navigate their way through the start to finish process of selling a business.  Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale

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My business due diligence experience

due diligence calmness

Due Diligence Naivety

When I first heard the words ‘due diligence’ I wondered what that was all about and was told ‘oh, its when the potential buyers look at your books’.

I took that to meant the business‘ finances; so things like the profit and loss account, balance sheet, bank account statements and the management information reports that we had.

That’s probably true if your business is turning over less than a million. But as my business didn’t fall into that category our solicitor passed over a due diligence questionnaire (DDQ) which ran to 12 pages! It was then when I had an ‘OMG’ moment as I looked through and saw that it covered all the different functional areas of the business.

We started collating the document list ASAP! And to help you know what you’re getting yourself in for we’ve reproduced the list in our ‘Preparing for Due Diligence Checklist Pack’ along with my recommendation for your data room folder structure.

On top of this during the business sale process in order to field and answer all the demanding questions from the buyers, the documents started to pile up.

By the end of the process, for my business, it turned out we had prepared approximately 800 documents! We had to provide examples of everything. Detailed sales forecasts for the next 3 years, samples of our software code (for IPR), a record of the last 2 years salary increases, a list of leavers and reasons why they left the company.

Some of the information was provided by the solicitors, like property searches and they helped with scanning paper contracts as we didn’t have the right tool nor resources to spend on this.

But the vast majority of the documents, 95%, has to come from the business and your business broker isn’t really going to be able to help besides pointing out what documents are essential and missing.

Delegate, delegate, delegate

Preparing 800 documents for due diligence did take a toll on me. Luckily only a core 30 documents changed over time that needed to be updated during the business sale. However, in order to get all the documents ready in the first place, I changed the business operating processes to be more efficient so I could just use the documents as they stood or with minor ‘tweaks’ and at the very least have the right company folder structure where I could locate the information very quickly. I also made sure that processes such as sales, finance, account management were documented which is simply good practice to do.

How you know you’re fully prepared

Having this all in place allowed me to field the questions from potential buyers quite easily and provide the answers within a very short time period, mainly within a 24 hour turnaround time.  Being prepared allowed me to refer them to the right document in the data room to go look at instead of unique answers to each question. And if the answer wasn’t readily available, that’s when it got created and added to the data room.

Of course going around the sales process over five times does make you a pro and you quickly find ways to make it all the more efficient. That’s why I created the  ‘Preparing for Due Diligence Checklist Pack’. It gives you a head start as it includes all the common documentation in a checklist that a business going through due diligence needs.

As long as you have one person that is responsible for managing the data room and can source the documentation from the business whenever needed (this includes 11pm at night), you will find the whole due diligence stage easier and best of all it doesn’t have to all be done by you – allowing you to focus on the business and not in it!

Joanna Miller helps business owners navigate their way through the start to finish process of selling a business.  Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale

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5 Key Due Diligence Requests To Prepare for Now (before you sell)!

Due Diligence Requests

Due Diligence Requests5 Key Due Diligence Requests

Due diligence is the analysis and investigative process that follows an offer or letter of intent from the buyer. When you make it to this stage it’s safe to say that the buyer is serious.

The idea of due diligence is to evaluate the potential opportunities and risks of the purchase, and discover any other particular issues. Once completed, due diligence will facilitate the buyers team to manage their thought processes efficiently, so as to deal with and prioritise the decision-making procedure. It will ultimately lead to optimising any deal terms while recognising and addressing risks linked with the transaction.

It’s important to understand that due diligence does not merely entail gathering data and checking boxes. Largely, achievements are based on the worth of future cash flows. Your buyers will need to determine the worth of the particular assets that they are buying or the responsibilities that they are assuming. They will want to analyse the data in the perspective of how upcoming cash flows will be influenced by the issues examined. Due diligence items not only include the hard information that your buyer requires to measure prospective financial, legal, and regulatory experiences, but also provide insights into your company’s physical structure, prevalent practices, available human resources, operational processes, relationships with supplier and customer, competitiveness in the market, and future outlook. Following are the main items required for the purpose of due diligence by the buyer.

Due Diligence Request #1: Sales Forecast

The sales forecast is of utmost importance in a business plan, revealing the detailed forecasted sales for your company. Almost all companies require producing forecasts of their short to medium term sales. Sale forecast is of special attention to potential investors eager to gauge the dimension of a prospective purchase. It is one of the most cared about Due Diligence items requested by the buyer’s team. On the other hand, it is also a complicated section for entrepreneurs to prepare, as they might not have historical statistics upon which to base their forecasts. The key for business owners is to build some reasonable assumptions that they can support. Preferably they must look to discover benchmarks, hence aligning their figures with other businesses in the industry. Sales forecasting need not be 100 % accurate, as nobody can foresee the future. Sales forecasting is intended to assist your buyers weigh up the existing and future demand levels, so that they can estimate the resources that would be required to make those sales. One massive thing to keep in mind is that whatever you supply to  the buyer you’ll have to make sure you can make it happen! Don’t inflate figures or you’ll really have a struggle on your hands when it comes to puting the proof in the pudding.

Due Diligence Request #2: Employee Information

The human resource being the most important and dynamic asset of any organisation, your buyers can’t overlook employee information. The employee information term is used for a broad and comprehensive system that keeps and tracks records pertaining to all the employees in an organisation. It reveals ample details related to their resumes, contracts, job descriptions, leave and attendance records, inter-company transfers and the workflow concerned during the transfer procedure, track of appraisals and promotions etc. It also includes  Recruitment, Payroll and Training Systems of employees in your company. Buyers will be looking out for key employees so it’s important to make sure they don’t jump ship before or during the sale.

Due Diligence Request #3: P&L and Balance Sheet plus Monthly Management Information

P&L and Balance Sheet are the third most important Due Diligence items requested by Buyer’s Team. To guide your business to the financial track you desire it to take, you need to understand where you’re earning money and where you’re spending it. That’s why you must maintain accounts and generate regular reports, including profit & loss account and balance sheet. Whenever you sell your goods or services to others, it costs you money to pay for the production of those goods and services. And, in return for those goods or services, you will be receiving money likewise. So, if you are getting more than you are paying for, you should be making a profit. This record is kept under profit & loss account.

Your balance sheet depicts the balance between your assets and liabilities. The balance sheet for your company provides a clear view of your business worth at one specific moment in time. Generally, it is done at the end of the financial year and provides you the situation of the company from one year to the next. However one can also draft monthly or quarterly balance sheets. Your buyers will be examining financial performance and weighing it against earlier performance. You should facilitate them in the process by providing any details that they request.

The Monthly Management Information shall provide a snapshot of the performance statistics available in the Management Information System on the last day of every month. It is usually posted several days after the ending of the reporting time. Your buyer would like to take a look at the MMI, so you should make sure that you prepare this document every month.

Due Diligence Request #4: Statutory Information on Company

Statutory information on company pertains to the information relating to its statute, code, or written law, which helps to understand the company infrastructure. This information is usually given in the memorandum and articles, and should not be a problem for you to and your team to create.

Due Diligence Request #5: List of Client Contracts

Your clients are your business assets. Consequently, a major part of being successful in business is to keep them close. The number and worth of your client contracts would determine the sale price for your business. Apart from scrutinising client contracts, your buyer may also like to know how you keep the records of your customers.

The Due Diligence aspect of selling your business is a lengthy and time consuming one. If you have time on your hands now, it’s in you best interest to prepare the information needed proactively rather than re-actively. In other words, sort this out now so that when it comes to crunch time you can put all your efforts on making sure you’re hitting the forecasted targets! At Sell Your Business, we’ve created a fantastic Due Diligence pack that will help you prepare. Don’t let the buyer or your team hold you to ransom – get one step ahead! Check out our Due Diligence collection today!

Kim Brown, Co-Founder of Business Wand, helps business owners navigate their way through the start to finish process of selling a business. Her specialty is to help owners cut costs and increase profits prior to sale. To understand how you can sell your business quickly for the highest sales price, purchase the book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”

 

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Understanding the importance of the data room

Understanding the importance of the data room

Before

Had you been selling your business before the age of the Internet, you would have set up a physical data room for due diligence of your business records by the buyers. A data room becomes necessary when there’s a large amount of confidential data that you want to share with your prospective buyers for the process of due diligence. In old times, this would be a closely guarded room with copies of all documents that are requested or desired by your buyers during the process of business sale. Only one party would be allowed to visit the data room for due diligence of records. In case extra copies were needed, they would be provided after keeping a proper record, so that no information fell into unwanted hands.

Now

Setting up a physical data room is time consuming and expensive (take a look at our data room structure sample in our Free Document samples section). At times, the advisors and accountants of the buyer may have to be flown in from another city just to scrutinise the documents in the data room. Thanks to the Internet, these days, companies establish online or “virtual” data rooms that are accessible to all interested buyers through the Internet. A virtual data room is simply a secure website that contains all the required documents from your company. Some of these documents may be highly confidential, so a virtual data room has fool proof security against hackers or unauthorised access. The people who are authorised to access the information are given login IDs and passwords. Also, you can assign different clearance levels to different people, which means that a person can only access the documents that are required for diligence by that person. Restrictions are applied on dissemination of information through copying or printing.

Although a physical data room still becomes necessary in some highly secretive deals and government contracts, the increasing speed, ubiquity and security of the Internet has made it quite economical and convenient to establish a virtual data room. When you are going for a business sale, many bidders may be interested in your offer. If you have more buyers and all of them are asking you for different company documents for carrying out the due diligence of your business standing and claims, it becomes problematic to deal with them separately. Your data is confidential, so providing your documents to the bidders individually will loosen your control on your confidentiality. Moreover, responding to the buyers’ request becomes cumbersome and requires dedicated resources. The process of enquiry and response is also more time consuming. Your buyer may be in a different part of the world and may require access to the documents at odd hours. All these problems can be solved by simply establishing a virtual data room, which your buyers can access 24×7. Providing logins and passwords to each one of your buyers ensures tight control, as you are all the time aware of who is looking at which particular document. The documents that contain sensitive information can be shared only at key moments, with key people.

A data room multiplies the chances of making a bountiful exit from your business, as your potential buyers can find the documents at their convenience. Also, a data room indicates that you are indeed serious about selling your business and want to keep the whole process as transparent as possible. By being more open with your documents and data, you are basically showing your confidence in your business and your respect for the requirements of your buyers. Your data room will be used by the buyer’s acquisition team, who may belong to finance, legal, and other departments. It can be hard to respond to requests from all these quarters if you haven’t  thought through and established a virtual data room and in the worst case scenario the deal could collapse with a nervous buyer if you were unable to provide the evidence in a timely manner.

In summary here’s why virtual data rooms are very effective during business sales:

  • More buyers become interested in your sale proposal when they know that you will provide them access to all relevant documents through a data room.
  • If you have given some time limit for bidding, having a virtual data room can increase the number of bids that you receive, as more people will be able to access your information, which is available 24×7.
  • You can have the knowledge about what your bidder(s) is looking at and understand the intentions better.
  • The business sale is accelerated as no time is wasted in requesting for and gaining access to the documents.
  • A virtual data room provides better control on data and the people accessing that data. You can apply digital rights management and prevent the documents from being downloaded or shared with unauthorised people.

So if you haven’t started getting your data room together now’s the time to do it and to help you, we’ve got just the thing that will make it easier for you and help you understand exactly what you need to do and what costs are involved, Creating the Data Room Pack which also includes a zipped up data room structure to get you started.

Joanna Miller helps business owners navigate their way through the start to finish process of selling a business.  Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale