If you are considering selling all or part of your business, then it is crucial to first get a clear picture of the condition of your company. A vendor due diligence (VDD) offers just that. This audit, initiated by you as the seller, or vendor, helps to identify and address financial and tax deficiencies in advance. That way you can prevent these deficiencies from becoming obstacles during negotiations. In addition, a VDD boosts the trust of potential buyers by providing them with transparent insight into the financial health of your business.
Why opt for a VDD?
A vendor due diligence allows you to stay on top of the sales process. You get to critically evaluate your company before it is put on the market. This provides an answer to questions such as:
- Does the management possess all the information that a buyer might need?
- Are there hidden risks that a buyer might discover?
- Are the financial projections realistic and well-supported?
By eliminating inefficiencies and establishing clear documentation, you can avoid delays and risks. This speeds up the sales process and increases the chances of success.
In addition, a VDD gives you time to thoroughly prepare the required information. You can anticipate questions from buyers and present a compelling and well-supported story. This often results in more trust and higher bids.
If you are dealing with multiple potential buyers, then a consistent message, supported by a VDD, creates a stronger negotiating position and possibly a higher sales price.
An investment that pays off
Good preparation not only increases deal certainty, but also contributes to a more competitive bidding process. This is beneficial to the ultimate sales price. Moreover, a VDD gives you peace of mind; it prepares you for the buyers’ due diligence and helps avoid unpleasant surprises.
Practical tips for a successful VDD
A vendor due diligence requires a custom approach. Keep in mind the following points of attention:
- Timing is crucial: Start the process just before you put your business on the market. A report that is months old may contain outdated information and thus lose its value.
- Be discreet: Keep the process confidential to avoid premature disclosure of your intention to sell.
- Set priorities: A VDD analyses financial health, operational efficiency and legal compliance. Use these insights to make targeted improvements and increase your enterprise value.
- Know your buyer: Private equity funds focus on cash flow, while strategic buyers often factor their own experience and background into their decision-making. By understanding what type of buyer you want to attract, you can tailor the VDD accordingly.
Decision
A vendor due diligence may seem like an extra investment, but the benefits heavily outweigh the costs. It provides insight, strengthens your negotiating position and makes for a faster, smoother sale. In short, good preparation is the key to a successful transaction.