How to Prepare for Due Diligence
Preparing for due diligence is an important step for any company being evaluated. Due diligence is the comprehensive review of the target company's financial, legal, operational and other relevant information to help the acquiring company make an informed decision. Whilst it can be daunting, good preparation can ensure that the due diligence process runs smoothly and maximises your chances of concluding a deal. Here are a few steps to assist you during this process.
Gather All Relevant Information
This includes financial statements, legal documents, and any other information that may be relevant to the transaction. Make sure that the information is accurate and up-to-date, and that it is presented in a clear and organised manner.
Present the Information in an Understandable Manner
Many documents are shared during the process, several which can be complex such as business plans and forecasts. Present key information, including assumptions and commercial drivers, in a simple fashion. When information is provided in a clear, easy to understand way, prospective investors have confidence in your ability to be transparent and practical.
Identify Potential Risks
Before the due diligence process begins, it is important to identify any potential risks that may arise during the transaction. This could include financial, legal, or operational risks. By identifying these risks ahead of time, you can be better prepared to address them during the due diligence process. Certain risks can also be addressed prior to commencement of the process. In the event that these
can’t be addresses in advance, ensure that you have an action plan on how each of these risks will be addresses in the future.
Establish a Team to Manage the Process
Due diligence is a complex process that requires the input of multiple stakeholders. It is important to establish a team that includes representatives from finance, legal, operations, and other relevant departments. This team should be responsible for coordinating the due diligence process and ensuring that all relevant information is gathered and evaluated.
Effective communication is crucial during the due diligence process. It is therefore important to have good communicators on the team who will establish clear lines with the other party involved in the transaction.
Lastly in order to assist the team, consider preparing a list of frequently asked questions and answers, and ensure that the team are familiar with this information.
Prepare Information Sharing and Site Visit Process
It is important to create a comprehensive data room that contains all relevant information and documents to be shared during the process. The room needs to be secure and easily accessible to the due diligence team.
Having a process for site visits, either physical or virtual, needs to be established taking into consideration the locations of the respective teams, resources, etc. Once determined it is important to prepare a schedule for site visits, including the dates, times, and locations, as well as the specific areas of the premises that the due diligence team will be visiting.
Be Prepared for Unexpected Issues
Despite your best efforts, unexpected issues will arise during the due diligence. It is important to be prepared for these eventualities and to have a plan in place to address them. Discuss this possibility with the team, help them to quickly identify possible problems, and create a fluid and safe environment where they can raise these issues proactively with key stakeholders from the company.
Conclusion
Proper preparation can help minimise delays and ensures that the due diligence process runs smoothly. It's important to identify the key areas of focus, gather all relevant documents and information, organise them in a clear and accessible manner, create and prepare the team, and identify any potential risks that may arise. By taking these steps you can present your company in the best possible light and mitigate any potential risks that may arise during the due diligence process.