The time to consider getting your business ready to sell is not when you’ve engaged a broker to market what you’ve worked long and hard to build. It’s not when that broker has put together a marketing book and generated offers from interested parties. The time to begin the due diligence process is when you are considering selling your business – long before a broker has been engaged or a marketing book prepared.

You may ask yourself, “Why should I go to the expense of ‘pre-due diligence’ when we are just going to have to go through the process again when I have an interested buyer?” The reasons are numerous. Here are a few:

Time: When a real buyer conducts their due diligence, in many instances the time to gather the required information will be short and the pressure high. It is a stressful time and you will be bombarded with request upon request that will result in further questions regarding the information you are providing. You will not have time to deeply review the information you are presenting to the buyer. By taking the time to gather the information before it is needed, you will have the opportunity to carefully review and evaluate it to ensure there are not potential traps that could dissuade a buyer from completing the purchase.

Evaluation: By engaging a professional party to conduct pre-due diligence, you will obtain valuable input on what a buyer is looking for when they consider your company for purchase. A professional can independently evaluate your financial statements and make recommendations to improve the value of your business from a buyer’s perspective. It is critical that this professional evaluation occur at least a year (and preferably 2-3 years) before listing is considered to ensure that their recommendations can be put in place and a successful track record established to enhance your business’s value.

Corporate Governance: During the pre-due diligence process, you may determine that there are certain corporate governance or tax issues that should be considered before consummating a transaction. There may be buy/sell agreements with minority shareholders that could prevent a sale closure, or result in additional cash out of your pocket. Additionally, there may be tax considerations (such as an S-Corporation) to take into account. The time to evaluate and defuse these potential roadblocks is long before a buyer is at the door and not when an offer has been received.

Contracts: All contracts with 3rd parties, including rental and borrowing agreements, should be reviewed and considered. There may be terms in these contracts that may require concurrence of the 3rd party in order to consummate a transaction. Should these terms not be discovered until actual due diligence occurs, they could prevent the consummation of a sale or result in a lower ending price for your business.

These are only a few of the critical issues that can be addressed and successfully overcome during pre-due diligence. Many business brokers today won’t even begin working with a business that has not conducted this preparatory work. By engaging a professional to assist you with this process, you will enhance the value of your business, increase your chances of a successful closure, and boost the overall proceeds from your sale.