Once the Letter of Intent is signed the Buyer will expect to be able to perform a detailed inspection of the company and its records. This Due Diligence by the Buyer is the process of final verification of the critical information that the Buyer used in making the decision to purchase the business. It is almost always a contingency to the sale, and usually requires 2-6 weeks. During this time the Buyer will review the key operational, financial and marketing details of the business, including, but not limited to:
- Accounting and bank records
- Contracts & Leases
- Employees records
- Customer records (confirm Customer Agreements)
- Key suppliers (confirm Vendor Agreements)
- Visit the business to inspect assets
- Environmental issues
You can also expect that the Buyer will require a personal interview with all employees who are key to the ongoing success of the business.
Owners should always be prepared to deal with the unexpected. Due Diligence can bring additional negotiations. This is the part of the process where misunderstandings are most likely to surface. And this is another reason to support the Seller's involvement in developing and defining the details of the Due Diligence process before signing the LOI.
After the Due Diligence is complete and any other contingencies to the sale have been resolved, the parties’ attorneys will prepare the Purchase and Sale Agreement (PSA). This is the final binding agreement that will consummate the sale of the business. It will contain the elements of the LOI along with representations and warranties of the Buyer and Seller and the details of the transfer of ownership.
A good attorney that has experience with selling businesses should be consulted to assist in developing the Letter of Intent and/ or developing/ reviewing the PSA.
(Buyer Due Diligence)
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