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Paula Fargo

Due Diligence in Selling a Sign Company

What does the business phrase mean for your sale?

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DUE DILIGENCE IS ONE OF THOSE corporate-sounding phrases that desk jockeys toss around to make themselves sound smart.

“Hey, Chip, let’s circle back and touch base on that disruptive game-changer we discussed, going over key takeaways and doing a deep dive into the paradigm shift of that low-hanging fruit, if you have the bandwidth. And don’t forget to do your due diligence!”

In the case of selling your business, “due diligence” means “the reasonable steps taken by a person in order to satisfy a legal requirement,” or “a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.”

So, due diligence is done by the people who are looking to buy your signshop. They ask for it, you provide it.

You can approach the due diligence phase of the business sale in one of three possible ways:

  1. You can give the bare minimum of what is being asked for, not being very forthcoming, “sweeping dirt under the rug,” and basically being cagey, untrusting and untrustworthy.
  2. You can go overboard and give every scrap of data and invoice copy going back a decade to either dazzle them with brilliance or baffle them with bullsh*t, making it impossible for them to go through everything.
  3. You can follow a middle path, offering precisely what they asked for in “good faith” for a reasonable party to base their decision on accurate information.

If you’ve read my columns for these past few years, you probably realize that I took path #3, and here’s why:

Option 1 will probably not have a good outcome for either of you. Acting in this way verges on “bad faith,” which can be legally actionable if the buyer goes through with the transaction and something they asked for but didn’t get materially resulted in an issue that cost them money. An example of this might be if you claim to own a piece of equipment outright, but you just lease it. Yes, the buyer should have been more diligent in looking into that; however, you still look like a jerk, possibly a legally liable fraudster, and there will be bad blood (not to mention bad karma) tainting the relationship moving forward.

Option 2 isn’t great either. It will take you a ton of time pulling all that documentation together and no one appreciates having more stuff to look at than strictly necessary. It might even delay your closing date while the buyer sifts through tons of papers and emails. The buyer might also think you are trying to hide important negative information within boxes and boxes of pedestrian materials. (Has anyone ever watched Suits?)

I’d stick with Option 3. Sometimes it’s hard to turn over such sensitive documentation to a total stranger. You might worry about being judged, or having that information used against you in some way. Perhaps you feel inadequate for not having better numbers, or sneaky for including some personal expenses on your business credit card. Believe me, buyers have seen it all before, and they know what to do with the information. Put the shoe on the other foot and realize you would be asking for the same things if you were buying a business — or you should be asking!

Even though due diligence is mostly on the buying side, that doesn’t mean you as seller shouldn’t do some due diligence of your own in this process. Some examples include:

  • Getting financial information about the prospective buyer. (Do they have the resources to buy your shop? Do they have a good financial reputation?)
  • Requesting a resume or other information about the prospective buyer. (Are they qualified to run your shop once they buy it?)
  • Asking about their plans for your company. (Do they plan to keep your staff?)
  • Seeing if they intend to make any material changes immediately after buying.
  • Meeting with them informally, just to take “the measure of the man.”

Due diligence is a crucial and time-consuming part of the sales process. Do it right and the rest of your sale has a better chance of falling into place.

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