Due diligence: how to prepare

Due diligence – the technical term for a comprehensive audit of a company – is one of the most time-consuming phases in the sales process. For the seller, the due diligence process involves compiling all the relevant information and documents in a way that allows potential buyers to review them in a structured manner. The effort involved is considerable, but is worthwhile for a number of reasons. A carefully prepared due diligence process creates transparency, enhances the informative value of the analysis, and reduces the perceived risk for buyers. This can have a positive impact on their purchase decision and improve the terms of the sales contract.

Ideally, the seller should prepare early and conduct a systematic review of all relevant areas, allowing risks to be identified in advance rather than only coming to light during due diligence by potential buyers. Complete, consistent and transparent data strengthens the relationship of trust between the parties and streamlines the entire due diligence process. Sellers who prepare carefully create a solid basis for a structured audit and have the best chance of achieving a mutually satisfactory outcome. The following five tips indicate what’s important when preparing for due diligence.

During the due diligence process, sellers are regularly asked to provide information and documents that are not always readily available internally. If a due diligence audit reveals that an important document is missing, it is often necessary to consult external parties, such as authorities, banks or contractual partners, who have a legal obligation to retain records. Checking these external sources early on makes the subsequent audit much easier and reduces delays in the sales process.

The main sources for obtaining external due diligence documents in different areas are given below:

Regular, accurate financial reporting is another key to successful due diligence. Simply preparing financial statements once a year is not enough. A company should be able to report on its financial performance on a consolidated basis each month, within a few days of the end of the month. Monthly reporting documents are not comparable to comprehensive annual financial statements, but should nevertheless provide conclusive insights into trends in revenue, costs and operating profit.

This requires suitable accounting software and a well-organized accounting system. Establishing this system usually requires one or more years of preparation and the determination to organize company processes accordingly. The benefits are likely to far outweigh the costs, as regular, timely financial information not only allows efficient due diligence, but also facilitates and improves the company’s financial management.

A lack of reliable, prompt financial reporting can cause delays and additional work during the sales process. It can also result in a loss of trust and increased risk for potential buyers, which may lead to a lower purchase price or even the failure of the entire transaction.

Tip: consider adopting an international accounting standard, such as Swiss GAAP FER, which reflects the actual business perspective.

Record-keeping requirements in day-to-day business operations are primarily governed by the statutory provisions of the Swiss Code of Obligations. This applies to documents such as minutes of general meetings or board meetings, accounting records and contractual documents. These regulations define the minimum duration of retention, but do not necessarily cover the requirements of a comprehensive due diligence audit.

It may be advisable to retain certain information for longer than the period required by law. This helps minimize potential risks in the audit process and highlights the importance of transparency and thoroughness. Auditing financial statements is a classic example. Audited financial statements build trust, facilitate financial due diligence, and are viewed much more favorably by potential buyers than unaudited financial statements.

Voluntarily providing relevant documents in a structured manner is a way of demonstrating your reliability and professionalism. It also strengthens your negotiating position in the sales process.

There are various due diligence checklists available online that can give you an initial idea of what documents should be provided as part of a due diligence audit. Although lists like these are useful for assessing the scope and significance of the process, they do not replace a customized analysis of your business. Due diligence is conducted in various areas, depending on the company’s legal structure, industry, market environment, business model and risk profile. You should be sure to seek guidance from an experienced M&A advisor early on.

As the due diligence process approaches, it also makes sense to bring in additional specialists – such as fiduciaries or lawyers. As well as having the necessary expertise, they can rapidly provide any documents you may need and significantly lighten your workload throughout the due diligence process.

Tip: Take the UBS succession check! Find out if your business is ready for a sale. With our seven-minute check, you can find out where you stand and what you should pay special attention to.