Reverse Due Diligence allows you to delve deep into your own company as if you were the buyer. To prepare your business for sale and enhance its value, you must consider this action in the same manner as if you were the purchaser.
This article is written as general guide of the Reverse Due Diligence procedures. It is recommended that you seek further advice with your professional advisor team, with the aim to apply these procedures to the specific circumstances of your dental practice or business once a suitable buyer has emerged.
Due diligence is typically carried out in several steps, undertaken by a potential buyer to decisively appraise the overall position and condition of the business being purchased.
Most business owners spend most of their life in their business and are often unaware of small issues that can mean the difference between a sale, a cancelled contract, or renegotiations for a lower price. By entering a Reverse Due Diligence procedure your team can objectively assess and rectify significant points prior to listing the practice for sale.
Using Reverse Due Diligence as a business health check at any point in time can offer the owner a critical, self-examining look at their own business, giving the opportunity to make value-enhancing adjustments along the way. Smart choice if your Exit Plan is 5 years or less away.
Reverse Due Diligence will also allow the owner to consider the business financial situation at any given point in time, and uncover any potential risks that might present prior to exit. This is also the perfect opportunity to view the entire practice from staff performance, patient recall and retention, the quality of assets, milestones, and all other operational aspects of the practice.
Using this 5-step reverse due diligence checklist below would produce the same information for all parties at the end of due diligence.
The report would produce a thorough blue print of the practice from all points of view, allowing the buyer to make an informed opinion on the findings and recommendations that the seller can act on prior to exchange of contracts.
A major reason for completing Reverse Due Diligence prior to listing your practice is to neutralise the element of surprise. So many deals have been scuttled at this point because of insignificant issues that arise causing the buyer to get cold feet or that the seller was or was not unaware of. A problem that they may want to ignore in the hope it was overlooked could for example cause mistrust and eventually lead to a lost sale.
One needs to remember the buyers team will be looking for every reason to find fault in the hope of shifting power to the buyer, in a bid to reduce the asking price or other such terms.
On many occasions, completing early Reverse Due Diligence can be a two-sided sword, producing on the one hand results which have significantly increased the value of the practice, or on the other hand the true lower value has emerged which then gives you reason to reconsider your options regarding selling at this time.
So, when you engage your team to start the Reverse Due Diligence process, you will have a thorough understanding of where your surgery sits in its entirety, giving you a unique viewpoint on the findings in the report. This will also give you time to resolve any issues that may cause problems later.
By offering the completed report to a serious buyer who has engaged in a contract, or several interested buyers, can speed the process and disarm the buyer by providing the information they may need to be confident about your financials and operations. Buyers’ offers would then be based on a deeper understanding about the operations of your practice, knowing you have covered all your bases, thus saving time and money for all parties along the way. As we know when the lawyers or accountants start fighting, the fees go through the roof.
No doubt once you have entered into a contract the buyer will still want to conduct their own due diligence, but you can rest assured and confident you have covered all your bases knowing that no surprises will surface that could cause a loss of a sale down the track.
By completing Reverse Due Diligence early and delving deep into your practice thoroughly from a buyer’s perspective, you can improve the practice value and increase your negotiating power. Having completed a Reverse Due Diligence report will enhance your position in the negotiation.
Reverse Due Diligence enables sellers and their team to identify the true value, whilst creating total transparency, minimizing the element of surprise, uncertainty, and ensuring a seamless sale transaction process.