Today’s economy and changing demographics have provided more access to capital and opportunities for small and medium-sized businesses to grow or to sell. Sellers performing their own due diligence can protect value, shorten the sales process, and present confidence to prospective buyers. Seller diligence can range from preliminary valuation, risk assessments, reviews or compilations, or quality of earnings reports. A traditional quality of earnings report includes areas such as adjusted earnings analyses, accounting policies, financial ratios, customer concentrations, and working capital (among others). For small and medium businesses, however, quality of earnings reports may be tailored to address specific risk areas, such as human resource policies, technology risks, management depth, or pro forma and projected financial information. 

Benjamin Franklin said, “a penny saved is a penny earned.” This can be translated to business owners performing their own seller diligence as, “a penny spent is more than a penny earned.” Here are three reasons business owners can benefit by engaging a professional services firm to conduct seller diligence:

1. Protect value.

   Negotiating 101 tells us that the buyer’s goal after offering a price in the letter of intent (LOI) is to get the number down through buyer due diligence. Every unknown uncovered during buyer’s due diligence is a potential drop in value or reason to call the deal off. Seller due diligence can identify unknowns on the front end and fix or disclose them.
   
   

2. Faster sales process.

   After the LOI is signed, the diligence process typically lasts from 60 to 90 days. Every day that goes by is a chance for something unexpected to happen – commodity prices, natural disasters, health issues, scandals, employee issues, litigation, or legislation (among others). Seller diligence can shorten the time between the LOI and the final purchase agreement. A faster sales process can translate to more dollars in the seller’s pocket.
   
   

3. Present confidence.

   As private equity extends into smaller capital markets, a seller that has already engaged in due diligence on the front end presents confidence and commitment to getting a deal done. This, in turn, can provide more time for your investment banker, broker, and advisors to find buyers and raise value.  

P&N is a full-service accounting and advisory firm, ranked in the Top 100 accounting firms in the United States. With offices in Baton Rouge, Lafayette, New Orleans and Houston, we serve middle-market companies in the Gulf South and across the country. Our dedicated team of valuation and transaction professionals has experience to help businesses navigate the diligence process. Moreover, our breadth of experience as a full service firm allows us to customize our services to your needs, including tax, audit, internal audit, human resources, and technology.