When you hear the term “due diligence background check,” you likely think of checks requested by the buyers in the final stage of a deal. These checks are commonly conducted on the owners and management team to help prevent fraud and liability issues.
In today’s market, a continuing trend is that due diligence checks are being conducted on the sellers in advance of going to market. Throughout this article, we will discuss how sell-side due diligence background checks can help you yield the best results for your firm.
What is Sell-Side Due Diligence?
In sell-side due diligence, advisors or investment bankers can maximize their client’s value by identifying potential red flags upfront. This process can reveal common smaller issues and even potential “deal-killers.” A background check on the company itself can locate financial problems, such as tax liens and judgments, and even lawsuits. Many times, the seller may be unaware of some of the issues filed against their business. Background checks on the management team are also key in understanding more about their past. An owner may disclose they had a few financial troubles or even a criminal record, but is there something that they are not sharing? A thorough check that will be conducted by the buyers can locate these items and more.
During sell-side due diligence, you seek to address all the issues that a well-organized buyer would raise during their own due diligence process. It’s often most productive to think of this as an internal audit. Ultimately, sellers have the opportunity to address weaknesses and prepare for potential “tough questions” by a buyer, thus facilitating more efficient transactions.
Why Invest in a Sell-Side Due Diligence Background Check?
Today, buyers are more selective than ever when it comes to acquiring companies. To help sellers prepare their companies for the sale process, a sell-side due diligence background check should be performed.
Here are some of the benefits of sell-side due diligence:
- It improves the speed of closing
- It allows the seller to proactively understand and address any potential concerns a buyer may have
- It permits management to focus more on the business during the sales process
- It reduces the risk of the deal being renegotiated because of a finding located in the buyer’s due diligence background checks
A sell-side due diligence background check encourages business owners to look at their company and its operations through a more critical lens. Regardless of whether you’re trying to sell your business or representing the seller, conducting background checks on companies and the management team before going to market can streamline your internal review process, prompt revisions buyers may request, and make sales more efficient.