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Why Consider Sell-Side Financial Due Diligence?

Before you sell your company, you need careful consideration and due diligence to ensure there are no unidentified financial risks. Doing sell-side financial due diligence can help you in many ways, such as lowering risk, accelerating the process, and increasing the enterprise value of your company.

The value of sell-side financial due diligence:

• Provides transparency and credibility to the financial information shared with buyers.
• Reduces risk of surprises surfacing during buyer diligence
• Experienced diligence professionals support the management team and protect seller interests when handling buyer requests
• Allows management to focus on running the business during the buyer diligence process to ensure value retention and negotiating leverage
• Shortens the time needed between execution of the letter of intent and the closing date

The risk of not performing sell-side financial due diligence:

• Undervaluation
• Failure to identify errors in accounting during the historical period, such as:
  • Revenue recognition
  • Expense recognition
  • Excessive use of funds for personal use (typically owner related)
  • Accounting for inventory
  • Cash basis versus accrual accounting
• Lack of understanding of important significant trends (i.e., revenue trends, expense trends, working capital trends, etc.)
• Failure to identify significant on and off-balance sheet commitments/unreported liabilities (i.e., debt-like considerations)
• Loss of leverage in post-LOI negotiations

How Centri Can Help

Centri’s integrated approach addresses your needs across the sale process, working with your attorneys, investment bankers, and other advisors to identify and mitigate risks. Our process is designed to identify issues, set the narrative, and expand value, all before presenting your business to a potential buyer. Contact us to learn more.

Editor’s note: This article was originally published on June 26, 2023. It was updated on October 16, 2023.

Maxwell B. Heller

Managing Director | M&A Advisory Practice Leader

Max is a Managing Director at Centri Business Consulting and the leader of the firm’s M&A Advisory Practice. He has more than 18 years of merger and acquisition consulting experience and provides M&A advisory services...