Selling Your Business: Operational Checklist
When preparing to sell your company, due diligence is a crucial step that potential buyers use to gain a deep understanding of your operations, financial health, and business dependencies. In this overview, we break down what an “operational” or “commercial due diligence request” means, and how it differs from other forms of due diligence. Knowing what to expect can help you respond effectively, showcasing the true value of your business while addressing any concerns.
3 Key Takeaways About Commercial Due Diligence
Commercial Due Diligence Focuses on Operations
Unlike legal or financial due diligence, commercial due diligence dives into the day-to-day aspects of how your business runs. Buyers want to validate everything you’ve told them about your company’s operations. This includes understanding your relationships with suppliers, vendors, and key customers, as well as looking into the organization chart and understanding your staffing structure. Essentially, it’s a “behind-the-scenes” look to ensure there are no operational surprises post-sale.
A Detailed Look at Business Relationships and Dependencies
Buyers will examine who you do business with and the nature of these relationships. Are there any key dependencies, such as exclusive suppliers or major customers who contribute a large percentage of your revenue? Buyers are especially interested in contingencies and risk factors that could impact revenue or profitability after the acquisition. The goal here is to understand the stability of your business relationships and any potential vulnerabilities.
Clear Distinctions Between Commercial, Legal, and Financial Due Diligence
It’s essential to differentiate commercial due diligence from other types:
Legal Due Diligence digs into contracts, agreements, and corporate structure.
Financial Due Diligence assesses how cash flows through the business, examining revenues, expenses, and the underlying economics of your company.
Commercial due diligence, by contrast, is more focused on the operational, non-financial, and non-legal facets that define how your business functions on a daily basis.
Key Terms to Understand
Commercial Due Diligence: An assessment of a business’s operational structure, including relationships with customers, suppliers, and internal staffing, to evaluate non-financial risk and operational stability.
Dependencies and Contingencies: Critical relationships or conditions that could affect business continuity or profitability, such as reliance on specific suppliers or large customers.
Preparing for a Smooth Business Sale
For sellers, understanding these different types of due diligence and preparing accordingly can make the process smoother and less stressful. By addressing potential concerns upfront, you position your business as a strong, stable acquisition, increasing buyer confidence. Commercial due diligence is just one piece of the puzzle, but it’s essential for portraying the full scope of how your business operates.
For more expert insights on preparing your business for sale, check out the resources at Candor Advisors.
