The 8 key reports you must make available to potential buyers of your business

The 8 key reports you must make available to potential buyers of your business

If you are looking to sell your business or are acting on behalf of a business owner who wishes to sell, you no doubt understand the importance of the correct disclosure of your company information.
The due diligence process offers buyers the opportunity to review documents and ask relevant questions of the current business owner. This gives buyers the complete picture of the business they are looking to buy and ensures the seller meets all disclosure obligations from a financial and legal perspective.
The more company information a business owner can present in the first instance, the quicker the sale process is likely to become.
Buyers will see less risk in the purchase if they have their questions answered before they have even thought to ask them.
So what is a proven way to organise your company information during the due diligence phase of a business sale?
In our experience, we have found the following 8 key reports to be critical in helping describe the company for sale and answer any questions buyers may have.

The 8 Key reports

  1. Legal Situation
    Seen as the foundation report for all other reports. Establishes the legal entity(s) involved in the transaction, contracts, key legal documents, outstanding or impending litigation and other legal matters.
  2. Tax Situation
    Tax returns, tax audits and current and future tax liabilities.
  3. Financial report
    Provide the last 3-5 years financial information, a complete breakdown of the company’s balance sheet, audit reports, financial planning for next 12 months and more.
  4. Market, Industry and Strategy
    Overview of the market in which the company operates. Economic, industry factors affecting the business – positive and negative. How is the company differentiated from competitors? What is the marketing strategy? Sales pipeline.
  5. Environmental
    Are there environmental impacts on the company? Are there environmental obligations?
  6. Insurance Coverage
    Confirms the types and level of insurance in place. Confirms any claims made on insurance policies.
  7. Technology
    What is the technology used by the company to manufacture/create/deliver its product or service? What is the technology used to support the administration of the business?
  8. Employees
    This is a human resources report. An overview of employees, their roles and positions in the company. Includes level of experience within the company, pay levels and achievements.

These 8 reports outline a wide selection of documents that need to be presented, most likely to multiple buyers, as part of the due diligence process.
The storing of critical documents must be done in such a way as to give each potential buyer an equal opportunity to review the company information and ask any due diligence questions.
The security, confidentiality and access to these documents must be tightly controlled through the due diligence process.
The docurex cloud based “dataroom” is a popular solution that helps the seller organise and control access to confidential information as part of the business sale.

CC Steve Wilson Flickr - Due Diligence

Discover the Importance of Due Diligence

The business world relies on the due diligence process on such a regular basis that it is often taken for granted.

However, it is worth reminding ourselves of the important role due diligence plays and how it helps companies make well informed decisions.

A Definition of Due Diligence

The term “Due Diligence” is used in business to describe to the process by which a purchaser will collect information and analyse a transaction before agreeing to or rejecting the deal.

The more thorough the due diligence carried out by a purchaser, the greater the chance they have of making a correct assessment of a transaction.

The following excellent explanation of the purpose of due diligence comes from

“Due diligence helps people and companies understand the nature of an investment, the risks of an investment, and how (or whether) an investment fits into a particular portfolio. Due diligence isn’t just good sense, it’s a duty investors owe to themselves — doing this sort of “homework” on a potential investment is often essential to making prudent investment decisions.”

The Facts Come First

The purpose of the due diligence process is to collect facts and information.

In the first instance it is not meant to generate immediate conclusions or opinions. Due diligence should be focused on gathering the facts and nothing but the facts of a particular situation.

It is typically up to the purchaser in a transaction to determine the information they need to make an informed decision. The purchaser must then present the requests for information and the seller will then collate the information and present their response.

Once all the facts have been gathered it is then possible for the relevant experts and professionals to analyse the data to assess the viability of the transaction. The quantity and quality of relevant and timely information that is gathered will directly affect the quality of the analysis of a deal.

Assessment of Risk and Opportunity

Every business transaction has an element of risk and an element of opportunity.

It is the duty of a purchaser to discover as much as possible about a particular transaction to identify those risks and opportunities.

For example: When buying a company, the purchaser must understand the level of obligations the company has – payroll, creditors, contracts, debts, legal, regulatory and environmental to name a few. Without a clear picture of these obligations a purchaser will not fully understand the risk they are accepting in buying the company.

On the other hand, there are opportunities to be identified as a result of the due diligence process. These opportunities include Information on regulatory changes that may give the company a new advantage in the marketplace, a new product may be in development but not yet announced or the introduction in new technology may dramatically reduce costs and increase margins.

It is important a purchaser uses the appropriate experts and professionals such as accountants and lawyers to assess both the risk and opportunity.

In summary, due diligence is the vital process by which companies gather and then analyse information about a transaction so they can make an informed decision.

The upfront effort placed into due diligence will potentially save or make millions of euros for a company. Company executives ignore due diligence at their peril.