Preparing For Acquisition - The Due Diligence Checklist

Preparing to sell your company requires a lot of work. Whether planned or unsolicited, when the time comes to ready the company for sale, you will be able to move much more quickly if your financial house is in already in order. The better prepared you are, the faster you can move (including interviewing advisors, and aligning on valuation expectations). By keeping financials organized you are increasing the probability that you sell quickly and efficiently, and at the best terms and price.  

Below are a few tips for operating your business so that you’re continuously ready for acquisition:  

1) Have your house in order  

It is important that a potential buyer knows that your house is in order. Make sure that all taxes are filed, and that there are no unresolved financial issues that could slow down the transaction process. Make sure that you have all of your constating documents (articles of incorporation, shareholders resolutions, annual corporate and tax filings) well organized and available in the same or similar format to the one that you’ll use when providing information to the buyer in confirmatory due diligence.  

2) Know Your SaaS metrics – your key Financials for Acquisition

Key financial indicators that are important to track continuously include: Monthly Recurring Revenue, Churn Rate (ideally by marketing channel, target market segment, and start month cohort), Customer Acquisition Cost (CAC), Customer Lifetime Value (LTV), as well as the more traditional income statement oriented line items like EBITDA, and Net Income. There are several software platforms that support the tracking and measurement of these, some of which are directly integrated into your accounting software, and others which run in parallel. KISSmetrics is in wide use for this purpose.  

3) Track Everything

Finally, when operating as if you’re continuously ready for sale, it is important to track as much data as possible, whether you believe the figures will be relevant to due diligence in the sale process, or not. It is always better to be over prepared rather than under, and by providing full transparency in confirmatory due diligence, buyer confidence levels will go up and deals will close more quickly.    

By attending to these suggestions, you should be well ahead of the curve once it's time to run a full sale process. 

If you would like a copy of a sample confirmatory Due Diligence checklist, please contact us and we would be happy to share it with you.