You can look at an acquisition of a company like a relationship. Often, one party pursues another and then the initial phase is spent getting to know each other better. In mergers and acquisitions (M&A) this is the initial due diligence phase. It can be a particularly stressful time for the company being acquired, as it is often unprepared or unaware of what is required of them to satisfy the prospective buyer’s requests.
As corporate advisors, our team at Nash Advisory has advised many companies as they prepare for diligence. We are well aware of what is expected, and the key questions that buyers ask. More importantly, we know how to respond to get the best result for your business sale. Find out more about selling a business with Nash today.
What is it important to know before buying a company?
There are many important pieces of information that need to be ascertained before a company is purchased. Buyers typically want to know about three things:
- The company’s history: How have things been going, what challenges have presented themselves, and what solutions have been found?
- The current situation for the company: What sort of structure and assets does the company have? How is the market, and what is the company doing to thrive in present circumstances?
- The company’s future: What are the plans for the future, and how realistic are the goals?
What are the top questions that buyers of companies ask?
When completing due diligence in the sale of a company, certain questions come up again and again. Currently, the top six questions that buyers of companies ask are:
- What has been the financial performance of the business over the past 3 years?
- What has been the impact on the business of COVID-19?
- Who are your main competitors and how are you different?
- What are your expectations (forecasts) for the next 12-24 months?
- Who are your key customers and who in the organization manages these relationships?
- How is your organization structured (staff, management, executives and board) and what is the ownership structure?
What’s the best process for asking and answering questions about a business sale?
In these early stages of diligence, it is important to maintain clear and quick communication with interested buyers to ensure the process runs quickly and smoothly. This is because when a company takes longer than 24 hours to respond to a simple request, such as providing historical financial accounts, it is sometimes symptomatic of a lack of sophisticated internal systems, under-preparedness, or a lack of commitment to the potential transaction. In any case, these are all red flags for a potential buyer who is often reviewing multiple opportunities simultaneously.
How can you prepare to answer questions the right way when selling a business?
At Nash Advisory, we focus on sale-ready strategies to prepare our clients well ahead of time. That way, when the questions begin, both our client and our team are ready to respond quickly and correctly. Here are a few things that business owners should keep in mind in preparation for a sale:
- Have your financial accounts audited by an appropriately qualified audit firm
- Implement systems for reporting on sales, profitability, staff or other relevant KPIs
- Record these KPIs via management meetings or board reports regularly
- Implement an active sales/business development function to focus on future financial performance
- Ensure the company has the right executive positions filled (CEO, CFO and General Manager)
What is the best medium for questions and answers when selling a business?
Communicating the answers to these questions can be a time-consuming and repetitive process if you have multiple interested buyers for your business. Utilising tools like online data rooms, video conferencing tools and collaborative document sharing reduces the amount of repetition in these presentations and can improve the efficiency when sharing information to buyers.