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Introduction to Due Diligence – how to make your company ready to sell

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Running a business is a passion for many, but when it comes time to let go, it’s important to be prepared. Before an upcoming company acquisition, an independent inspection of the company, a so-called due diligence, is often made by the buyer.

Information about the company is collected and analyzed down to the smallest detail, in order to create as clear a picture as possible of the condition. If you’re facing a possible sale, it might be smart to do your own due diligence. Then you simply look at your company from the outside and can fix any shortcomings in advance. The chances of a good negotiation will then be greater.

What is due diligence?

Due diligence, in short, is a due diligence. Conducting due diligence is an extensive process, but can be more or less detailed depending on the size and complexity of the audited company. The result of due diligence serves as a basis for decision-making for the buyer or investor, and can also form the basis for the contract negotiation.

For best results, you should hire professional advisors who can do a total review of the company.

Always ready for Due Diligence

A digital company binder helps your company to be DD-ready

How does due diligence work?

The inspection process usually looks somewhat the same in a due diligence. Overall, it can be said that the work is done in five stages.

  1. Preparatory work
    The buyer reviews the goals and risks of the acquisition.
  2. Information requested
    The buyer compiles what information is needed for the inspection and sends the list to the seller. The seller will then return with the information.
  3. Analysis
    The information is analyzed in several stages, divided into different types of due diligence. Most often it concerns tax, commercial, technical, financial and legal inspection.
  4. Reports
    The analysis is compiled in a report that serves as a basis for decision-making.
  5. Implementation
    The compiled documentation forms the basis for discussions about the arrangements for the possible sale. Here, buyers and sellers look at how possible risks can be prevented and what strengths and assets can be used to open up greater opportunities in the market. Depending on the results of the inspection, changes can be made both in terms of price and what should be included.

Different types of due diligence

Due diligence can take different forms. Depending on what steps the buyer includes in the DD process, different types of information are requested. Let’s go through the areas that are usually reviewed.

Tax DD
In a tax due diligence, you look at what the company’s tax situation looks like at present. These include VAT, income tax, opportunities for group contributions or other tax optimization, as well as transfer pricing. Tax risks are also reviewed. This part of the due diligence process is usually handled by a lawyer or accountant with a focus on tax issues.

Commercial DD process
The commercial part of due diligence is about market analysis. It is done so that the potential investors get an overview of the company’s competitive advantages and potential.

Technical DD process
There is often a technical part in a due diligence. Here, the focus is on detecting possible risks, such as environmental degradation, but also on valuing and assessing the condition of assets. A review of the IT structure of the company is made and practical tests of products are carried out.

Financial DD process
The financial part of a due diligence analyzes the company’s financial data. Most often, a hired accounting firm is based on the company’s accounts. Comparisons of results over several periods are made to gain insight into various changes made and their effects. The cost development in the company is also being reviewed. An important part of the work involves examining the balance sheet to find out how the company is financed and what changes have occurred recently.

Legal DD Process
The legal due diligence bit deals with legal issues relating to the company and is usually performed by a law firm. Company law, assessment of recently concluded and ongoing disputes, patents and important agreements are reviewed.

The importance of order

Of course, having order and order in all agreements, documents and financial data simplifies DD work. Before a possible sale or transfer of your company, you naturally want to make it as attractive as possible on the market. Always assume that the buyer will make a thorough analysis of the company and make sure to have all important information available when the time comes.

Nowadays, there are digital tools designed to handle the DD process. Boardeaser constantly keeps you ready by compiling and listing documents and agreements that should always be in the organization. We remind you of what needs to be revised and also offer a more detailed checklist for due diligence.

Want to know more? Book a free personal demo and try it free for 30 days! Completely unbiased!

Boardeaser makes it easy to manage and keep track of all company formalities. Digital share register and DD checklist are examples of solutions in our web service that help you towards a well-run company. Log in or register for free to test Boardeaser for 30 days.

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