No matter where you are on the journey, there is a way forward. Here we present five common due diligence modes and how to get ahead.
1. Due diligence is not relevant for my company at this time. Do I really need to spend time on this?
Rarely do you meet people who have “a few hours to spare” in the corporate world. Rather, time is in short supply. Therefore, it is quite understandable that preparations for a
due diligence doesn’t exactly attract.
But the fact is that the company gains a lot from being due diligence-ready, should it become relevant. The fact that all documentation is available sends out the right signals to potential buyers. The fact that the company appears to be well-managed reduces the risk for the buyer, which increases the value. The probability that the acquisition will take place is also increased.
2. I’ve never had a thought of getting due diligence-ready. Where do I start?
It’s never too late to get due diligence-ready. But if you make sure to be ready when the time comes, the process is both faster and smoother. Start by introducing a clear structure for the management of financial reports , contract copies, market analyzes, personnel data and other relevant information.
A good start is to answer the following questions:
- Who is responsible for producing financial reports?
- How should the financial reports be presented?
- How often should the financial reports be followed up with new ones?
- Who is responsible for market analysis?
- How often should new market analyses be presented?
- Who is responsible for documenting important changes in the organization and what form should the documentation take?
- Where should all the information be stored?
Once the structure is in place, you’ve come a long way towards becoming due diligence-ready.
Always ready for Due Diligence
A digital company binder helps your company to be DD-ready
3. I have pretty good control of my company and it will soon be time for due diligence. Do I need to involve an outsider?
Keeping up to date with how the company is doing in various respects is worth its weight in gold – especially when due diligence becomes relevant. If all the documentation is in place and you feel that you have control over most things, you can do well on your own. Many still choose to enlist the help of an external advisor. When a pair of extra eyes reviews the documentation, new possibilities can be discovered. Perhaps it is possible to produce additional data that can be useful to specific stakeholders? Is it possible to improve the form of the documentation to make it more useful in due diligence? Such questions can be valuable to take with an outsider.
In order for you to feel safe before a due diligence of your company, it can also feel good to go through the company’s finances and check current reports an extra time before you hand over the information. Then you can be sure that the risk picture corresponds to reality and you can create reasonable expectations for the upcoming deal.
4. My interest in the environment is great, so when I heard about Green Due Diligence, I became curious. Is it interesting for my company?
In the past, a so-called environmental impact assessment has often been made after a company acquisition, when the money has already been invested. It is now becoming increasingly common to map out possible business risks related to nature and the environment at an earlier stage. Risks that may delay, limit or, in the worst case, prohibit, all or part of the business. This mapping is what constitutes a so-called Green Due Diligence, and it is (so far) mainly relevant for companies that are dependent on properties of various types.
As EU environmental legislation becomes tougher, Green Due Diligence is likely to become more common. At the same time, the outside world is becoming increasingly sustainability-conscious. In addition to purely commercial risks, many company owners strive to preserve natural values and biodiversity as far as possible for moral reasons.
5. I am going to sell my company and a potential buyer has requested due diligence. Will I profit from it?
Due diligence is simply a due diligence that should tell the buyer what risks and opportunities there are in a possible acquisition of your company. Of course, you usually benefit from being open and honest – there is rarely any reason not to put your cards on the table before such a big business event.
Be prepared for any of the following scenarios to take place after your due diligence:
- The price is adjusted. Depending on what the information says about your company, the price can be adjusted up or down.
- The fine print is updated. The legal structure of the transaction may need to be changed based on new conditions.
- The purchase is canceled. If a material error is discovered, the entire transaction may be cancelled.
- The purchase agreement is updated. New contractual terms regarding the seller’s guarantees may arise if due diligence becomes difficult to carry out on certain levels.
- Errors are fixed before purchase. Sometimes the seller can carry out transactions under the condition that certain problems are fixed in advance.
- New investigations begin. Things that are discovered during due diligence often result in more investigations.
Get help from modern solutions
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.