Due Diligence - Acquire.com Academy

In this presentation, I'm going to be going over how to survive due diligence. So I've been through due diligence two times and it's, it's very time consuming, but it's a critical part to acquisitions. And really this is where the buyer is just verifying everything that you presented to them as accurate. And they're also going to try and find stuff that maybe bad about your business. What are the skeletons in the closet? What risks should they be aware of? So your job going through due diligence should really be to de risk the business acquisition as much as prior as much as possible for the buyer. So what is due diligence? Diligence is convincing the buyer your startup is as good as you say it is. So like buying a used car, they'll take it for a test drive, they'll ask a bunch of questions and sometimes find ways to, to haggle down the price. So this is something that is definitely fairly common in acquisitions. And if this happens, you know, this is where red flags start coming up with the buyer. If, if they move into due diligence and they say, hey, I found one thing and it's not material, you know, I'd probably have a talk with the buyer and say, you know, I don't think that's fair. And you know, that can really be the first. I'd say it's a yellow flag. But if they start doing that over and over and they get deeper in due diligence and they keep finding stuff, then they're probably not someone you want to work with. Nothing quite takes the shine off an acquisition like due diligence. It's long, tedious and often stressful. So here's what to expect. So they're really going to be reviewing the business health and performance. So you want to think of things like, do you have annual and quarterly reports for the last three to five years? Do this year's projections fall below or above your startup's budget? Should the quality of earnings report be conducted? What is the status and hope of your startup's assets and liens? Like, do you have any debt? And what is your company's even dollar profit or sdd? Sde? And what is the performance in terms of growth of your startup? So future growth? Are profits increasing or decreasing by how much? These are typical questions. What are the financial forecasts for the coming years? I'm not going to read through all these lists. I'd love to share them. But to keep this video brief, you can definitely go through these and some may apply to your business, some may not. Sometimes due diligence can be as quick as just, you know, again, giving access to your payment gateway to any sort of marketing tools that you used, everything that's basically used to run the business, verifying the revenue as stated, speaking with customers, speaking with your team if they're going to be coming on board and then going through any legal docs. Do you have like a third co founder that's going to pop out of nowhere once you sell the business. So that's going to be important to go over. So there's a lot to this. So again, not going to go through all of it, but this document is available so. But the high level takeaway from here is due diligence is lengthy and so by going through it personally as an entrepreneur, it's stressful. It really is like you're in due diligence. You want to present your business in the best possible light. The buyer will sometimes ask questions that may seem really obvious to you and you should just basically take, I always say just take an unemotional approach where you know, these questions may seem ridiculous. Like of course it works like this because you're, it's, you know, sometimes when you're selling your startup, you're selling your baby. So you know, you want these people to really, you know, ask, you know, thoughtful questions. But as a buyer, like you just don't know everything and it's your job to, you know, how does sales work, how does marketing work? You know, can you share with me all of your legal documents that I should know about? Do you have any large customer contracts? Can I meet with your team Potentially? I recommend usually only introducing to the exec team the people that are really going to be, you know, driving through these due diligence requests because you'll be asked for things like, you know, a code review. Do you use any open source libraries that may not be compliant with whatever their firm or company uses? There's so many different aspects, but my main point I'm trying to get across is go through it with excitement and understand that there are going to be questions that, you know, may seem tedious and time consuming and pointless, but really again, your job is to de risk the acquisition for the buyer and the more that you're open and transparent and helpful, the better. So definitely try and just basically go through this. When I was going through due diligence, I also had, you know, just slight M and A advisory. So we offer that on Micro acquirer where you can hire an M and A advisor just for questions like, is this a normal due diligence request? Because every private equity firm and every strategic acquirer is going to have a varying acquisition or due diligence process. It's going to be quick, it's going to be lengthy, depending on the deal. Maybe it's just like, hey, I love your product. Let me buy it. But I recommend hiring M and A advisory help. You can hire them by the hour, you can pay a small success fee. And just having someone in your corner that's been through this before can be really, really crucial as you enter due diligence and you're asked some questions that you may not be comfortable answering, and really just having someone help you through that process. So that's how it went for me. We got an offer, we moved into due diligence. It was definitely a lot of work for me. My team, me, my VP of engineering, my VP of engine of product, my cfo. I was even working through due diligence during my wedding. We had a wedding out of the country. And so literally I was working on it for. We spent probably hundreds of hours. So it can be a lot of work and just having someone in your corner to guide you through that, to make all the difference. And then another piece of advice that my main investor, Christian Freeland, told me was every hour that you're spending on this, you're potentially getting paid quite a bit. So, you know, keep pushing forward. Keep, you know, any sort of data requests that they have, you know, definitely put in the work, because the prize at the end of it could definitely be worth it.