Top 3 Advantages of Reverse Due Diligence Before Selling a Business

Are you thinking about selling your business? If so, a prospective buyer is likely to conduct “Due Diligence” or an investigation of your company to evaluate its strengths and weaknesses.  

What will they find? Do you know how your company will look to a potential buyer? Will the results of the buyer’s Due Diligence impact the price they will offer?

Be proactive. Investing in Reverse Due Diligence will answer these questions for you and will allow you to correct what a buyer will see before they conduct their Due Diligence.

What is Reverse Due Diligence?

Sell-side due diligence, also known as "Reverse Due Diligence," allows you to understand your company's strengths and weaknesses before selling your business. This will enable you to be aware of issues and remedy them before sale negotiations and the buyer's due diligence begins.

What are the advantages of Reverse Due Diligence before selling a business?

  1. Gives you, the seller, the upper hand by letting you know in advance what the buyer will learn and gives you the opportunity to prepare, mitigate, and even correct issues which may arise during the sales process.

  2. It may help to maximize your sale price by allowing you to correct the problems which may negatively affect the value of your company. During Reverse Due Diligence, recommendations are given to help you prepare for the sale of your business.

  3. Provides a smoother transaction by allowing the seller to anticipate the questions a buyer may ask and provide them with the materials and answers in advance. Being proactive can also help to maximize your sale price because if a buyer finds something out about your business that you did not tell them, it increases their risk and will likely decrease what they are willing to pay. Think of it like buying a house. If a homeowner puts the house on the market for $300,000, then the buyer discovers the house will need a new roof and HVAC system, they are likely to offer less than the asking price because now they value the house less. If, instead, the homeowner would have disclosed upfront that the home is priced at $300,000 because it needs a new roof and HVAC system, the buyer is more likely to value the house at the asking price.

As a business owner, you should be thinking about selling your business long before you are ready to exit. Doing so will allow you to increase the value of your business and prepare your business to sell. Investing in Reverse Due Diligence will help you to determine what areas your business needs to improve in.

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