Mind Your Business: The Due Diligence Process

By Steve Michaels

Question: I’m selling my business, and the buyer has asked me for a long list of information. What am I supposed to give him to complete his due diligence?

Answer: Everyone has his or her list of due diligence questions. One buyer might only want three or four items answered before he makes his decision, while others present a single-spaced list covering two pages of questions. It all depends upon the buyer and how meticulous they are in their fact-finding process.

What I tell sellers is to give them everything except customer lists and DID numbers. All else is fair game.

To make this easier for the buyer, I instruct sellers to print out their customer list with the client’s start date, the number of calls and minutes received in a month, and all of the associated charges. Then I tell them to use another piece of paper to cover the name and DID number of the account; in its place put what type of businesses they are, such as medical, apartment complex, plumber, and so forth.

This will give the buyer a good idea of the pricing, call volume, and type of accounts they are considering buying. Once the purchase has been consummated, the seller can just remove the paper and hand the buyer the account list with the actual customer names and DID numbers.

If only the accounts are being sold, some sellers think that they do not have to supply the buyer with financials since they are only taking over the accounts. This is incorrect. An astute buyer will want to see what comes in and out of the business to determine what the labor costs are, if the seller is utilizing the phone to the maximum benefit, and what perks are being taken out of the business. This is an important part of any deal whether someone is selling accounts only or the complete business.

Steve Michaels is a business broker with TAS Marketing; he can be contacted at 800-369-6126 or tas@tasmarketing.com for questions. His website is www.tasmarketing.com.

[From Connection Magazine June 2012]

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