Last month, we discussed the pressures of negotiating an employment offer. But perhaps you’re further along than that and have your own otolaryngology practice. Healthcare businesses are a hot commodity in the market today—there may even be interest in your healthcare business right now. This month, we’ll talk about a particular aspect of selling your business.
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October 2022Whether or not you’ve gone down the road of selling a business before, the process and preparation that a seller must do can be stressful and time-consuming. A lot of the time and stress centers around one aspect of a transaction: due diligence. Due diligence is a complex process, and while it can certainly feel like a roadblock to both sides of a transaction and can create deal fatigue, it doesn’t have to be that way.
What Is Due Diligence?
Due diligence is a prospective buyer’s opportunity to “look under the hood” of the business that they’re interested in purchasing. Once a letter of intent is signed, the buyer will ask for a detailed list of documents and information to evaluate before finalizing the deal. (See the sidebar for more information on letters of intent.) Due diligence can encompass a wide range of information, including financial statements, copies of licenses or permits, corporate formation documents, employee information, policies and procedures, lists of services provided, leases, vendor and payor contracts, asset lists, litigation information, and anything else a buyer may request to evaluate the business.
Sellers aim to get the best price for their business. If you build preparation into your business culture, you will reap the rewards well before you ever put your practice up for sale. —Emily A. Johnson, JD
Buyers will want to know that the target business is in good working order. As a seller, you want to put your best foot forward to ensure a smooth process. The best time to get your business into shape is well before you take it to market, but it can be a real challenge to prepare for questions that haven’t yet been asked.
Not preparing for future due diligence, however, can put a potential deal at serious risk. This may be acceptable for some sellers who will go on to find another buyer. But imagine if you needed to sell the business. Perhaps your personal circumstances have suddenly changed, the geographical area you practice in has changed, or you find yourself at the perfect strategic moment to maximize the value of your business. Transactions can be time-sensitive affairs. Buyers will walk away from a deal if they feel a business’s due diligence materials reveal too many issues.