Whether you are planning to sell your business, looking for new investors or seeking bank funding, the old scout motto still rings true – “Be Prepared”.
Those who have never done it before are often surprised at the huge amount of effort they have to put in when buyers, investors or funders start carrying out their due diligence process. They thought they had all their ducks in a row, that it would be pretty straightforward to answer all the questions and that they could quickly provide all the relevant paperwork. In fact, nine times out of ten it turns out to be a much more arduous task than was first thought and takes much longer than planned. Documents often can’t be found or don’t exist, they aren’t properly signed or dated, or they don’t contain provisions they ought to.
Delays can impact on both deal timetables and pricing, not to mention stress levels all round, so how can this be avoided? The answer is to be prepared and do your own diligence exercise well in advance of starting any sale, investment or funding transaction. That way all the issues you uncover can be sorted out before the process begins, meaning you look like an efficient well-run organisation and there are no nasty surprises that impact on price.
So, in advance of a deal what should you be focusing on? The key areas are as follows:
- Property – keep a list of all premises owned and occupied by the business along with fully signed and dated copies of leases, licence agreements and title deeds.
- Employees – keep a schedule of employees with relevant details – role, start date, DOB, salary, benefits etc. along with copies of each of their signed employment contracts.
- Pensions/Benefits – keep a schedule of what pension payments are made by the business to which pension schemes along with details of those schemes. If employees are not participating, make sure that’s noted with details of why. Keep a list of all benefits the company offers employees and copies of all related documents.
- Intellectual Property – if this is key to the business, make sure there are agreements in place to ensure the company has title to all the necessary IP and that contractors and employees have assigned this to the company.
- Customer/Supplier contracts – make sure you have copies of the signed contracts with all your key customers and suppliers. If these are unwritten then put a written contract in place or summarise the key terms.
- Data protection – make sure you have the necessary policies in place and documentation to back these up including the correct contractual arrangements with third parties where required.
- Statutory Books and registers – locate these and make sure they are up to date and that they match with what has been filed on the public registers such as companies house.
- Finance – have signed copies of all lease/HP documents including any standard terms and conditions as well as any invoice finance and bank funding documentation. Make sure your accounts, management accounts and tax returns are up to date and properly support your business plan.
- Regulatory – make sure you have all the licences and consents you need to conduct your business with up-to-date paperwork and notes of renewal dates/fees payable.
- Disputes – have available a summary of each ongoing dispute, actions taken and planned, advice received, if any, and all the supporting documents.
Looking out all this information and putting it into an easily accessible and indexed format is always a bigger job than you think but doing it will allow you to work out what is missing or incomplete and to take steps to fill the gaps or sort out any problems. Having all this information to hand in advance of a Due Diligence Questionnaire landing on your desk will lower stress levels and will certainly improve the chances of successfully completing a sale or funding round.
It sounds so simple, but many deals fall down because of issues that are red flagged during the diligence process. Don’t let it happen to you – be prepared!
If you would like help with preparing your business for sale or investment, please contact a member of our Corporate Team.