4 Simple Steps To Fast Due Diligence
How To Avoid Delays And Meet Deadlines In Due Diligence
Buying a business can be a scary and exciting process filled with all sorts of emotions. At times, you may feel stressed and overwhelmed with tasks and action steps that you’re not so familiar with. Yet there also may be times when you’re waiting for someone else and you don’t have anything to do. If you’re like me, you like things to go smoothly and fast in your business, especially when it comes to acquisitions. Whether you’re a first-time buyer or a seasoned aggregator, this post will outline four simple steps to a fast due diligence process.
1. Start The Process Early
Many DD projects are on a strict timeline. This means that buyers only have a certain number of days for DD until their exclusivity runs out. This can create a lot of stress since many buyers don’t confirm and start the DD process until after the LOI has been signed and the clock is ticking. This adds more stress and urgency and can easily be avoided.
It’s rather common for an investor to come to Centurica with a business under LOI and want to get started ASAP. Of course, we always want to do our best to support, but there are certain things that need to be done on our end before starting.
For example, we have to confirm the LoE (Letter of Engagement) for the project, get the first invoice and payment, and schedule in the project timeline (more on timeline later).
Understandably, buyers are eager to move forward, but these things need to be done first and can delay the start if not done proactively. When a buyer already has a business under LOI, it’s common for them to already feel the time pressure.
To prevent this, start the process early! It’s really that simple. You can do this by starting the communication with your DD team before you sign the LOI. We love buyers that start the process with us before they have the business under LOI. That way we can get the admin out of the way so we can hit the ground running as soon as LOI is confirmed. In these situations, a few days can make a huge difference. But if you wait until the last minute to get started, you’re in for more stress.
So, the first thing to do is to set the DD process up early. Buying a business is a big deal, so plan in advance so you can have a fast and smooth DD turnaround. Plus, you, the buyer, will probably sleep better at night.
2. Proper Data Access
Data access is a crucial first step that can often cause delays. If you’re on top of things, then these delays can easily be avoided.
In order to perform DD, we need access to ALL the necessary data. That doesn’t mean 91%, it means ALL OF IT. Accounting software access, bank statements, and access to the various platforms the business operates on.
Even if we are missing one single item then we can not successfully complete the DD. This is why it’s so important to get in front of the data access to keep this part as smooth as possible. A good DD provider will be on top of this and maintain good communication with the Seller to stay organized and address any areas that access is missing. This is a crucial first step in the process and often has delays. Especially if communication with the seller isn’t good.
3. Establish Good Rapport With The Seller [From Day 1]
DD is a collaborative process, and in order for it to be a success, everyone needs to participate in a professional and respectful manner. Like any business relationship, a lack of kindness, compassion, and professionalism can easily cause havoc.
Having good communication with the seller is crucial to keep the project moving forward in a timely manner. This is critical for the data access mentioned above, as well as later in the process to answer various questions that come up and need to be confirmed.
I want to make a special note here for you buyers to have some compassion for the seller. Yes, they’re close to a huge exit which they are excited about. But also, recognize that parts of the process can be a huge pain for the seller. The amount of data access, questions, and follow-up can add up and feel stressful, especially for sellers who aren’t plugged into their business and handling any day-to-day operations.
So it’s super important to remind them that this is all part of the process and will result in a positive outcome for them and they’ll be getting a big check if we can move through it smoothly. It’s also important to remain patient and not communicate in a way that comes off as blaming or arrogant. Bad rapport causes delays which can screw up the target timeline. It can also cause a lack of harmony between the buyer and the seller, which is also not a good thing for all parties involved.
4. Stick To A Solid Timeline
Like any project, the DD process runs more smoothly when you have a schedule with dates and deadlines. Coming into a DD project, you need to have a solid timeline laid out and a plan of action of how to hit the milestones. This includes kick-off calls with buyer/seller, internal reviews, as well as final report presentations. These all need to be planned at the beginning of the project so it can include everyone and suit their individual schedules.
At Centurica, our process takes about two weeks and is as follows.
Day 0 is the kickoff call.
Day 4 is Centurica’s internal check-in to identify if things are on track or if there are any blocks.
Day 10 is the internal review meeting. At this point, the project should be nearing completion and soon moves into final review.
Day 12 is the final review and preparation to share with the client. Then, we can move on to the final presentation on day 14.
Day 14: Final Presentation and completion of the project.
Conclusion: Smooth Is Fast
Hopefully, this post helps you prepare for your next acquisition. Or, if you’re going through one now, maybe it sheds some light on areas that you can improve on and take action immediately. If you implement these ideas, I’m sure you’re due diligence process will go faster and smoother than before. I know, the due diligence process can still seem a bit lengthy (especially if you’re quick to get impatient). So, I’ll leave you with a quote often attributed to the Navy Seals.
Slow is smooth; smooth is fast.
If you start the process early, get proper data access, establish a good rapport with the seller, and stick to a solid timeline, then you’re sure to have a smooth due diligence process. No delays + all deadlines met = fast due diligence.
Lastly, if you need any help with due diligence, please get in touch. Best if you do it before you sign the LOI. Either way, we’d love to help.