4 questions that a solid reverse diligence process should answer

On Behalf of | Sep 28, 2021 | Business Law

When selling a Washington business, it’s important to have a solid reverse diligence process. This will allow you to analyze your company from the prospective of someone who might buy it. The process considers ongoing legislation, access to documentation and other factors that make your business worthy of acquisition. Following are four questions that your reverse diligence process should answer.

1. Is your asking price reasonable?

You want your asking price to be an accurate reflection of your company’s value. Among the top factors considered during business valuations are:

  • Performance
  • Management
  • Financial statements
  • General appearance

Shortcomings across any of these areas are sure to lower the perceived value of your company. If you’ve been lax in online reputation management or in dealing with public relations issues, this negligence could have a surprising impact on how much buyers are willing to offer or whether they’re willing to make any offer at all.

2. Are there any unknown liabilities that might turn buyers off?

One very important thing to know about business law when selling a company is that buyers cannot always choose sidestep the assumption of liabilities. Structuring these deals as asset purchases can limit the assumption of some liabilities but not necessarily all. Thus, before selling, it’s always a good idea to have a thorough risk assessment performed.

3. Do you have the documents that buyers will need?

Don’t expect savvy prospects to simply take you at your word concerning the value, stability and overall merit of your company. You’ll want to have documents to back your claims up. These include:

  • Statement of cash flow or discretionary earnings
  • Inventory list with values
  • List of equipment, furnishings and fixtures
  • Contracts for all suppliers and distributors

4. Can you resolve existing problems?

Determine how you can make your business more appealing. In addition to scheduling a comprehensive risk assessment, consider investing in proactive reputation management to improve your company’s goodwill.

Reverse diligence is an important process when selling any company. However, it’s also an invaluable effort for company owners with no intention of selling. By regularly asking and answering these questions, you can identify vulnerabilities and other areas needing improvement before they harm your bottom line.