Understanding Due Diligence with Brian Diener from Centurica

Published: November 25, 2019

Brian Diener is the Director of Operations at Centurica. He has worked on over $50 million dollars in deals with buyers and sellers. Strong knowledge of Analytics, paid search and is a search engine optimization specialist. Experience operating and managing a portfolio of eCommerce and content websites.

“The goal of Due Diligence is to verify all of the information that has been presented. The offers that a buyer has made on a business is based on what has been claimed. During due diligence, the aim is to verify all of that information”.

In Brain’s talk, you will hear about what to expect as a Seller and he will walk you through a sample Due Diligence process.

Due Diligence takes place after the LOI has been signed by the Buyer and right up to the time of closing. This timeline can range from 1 – 2 weeks on the shorter side right up to 6 – 8 months on longer deals.

What is the purpose of Due Diligence?

Verify Claims
Identify Potential Risks
Assess Opportunity

What’s involved in Diligence?

Typically it is broken down into a few key stages:

Kickoff / Requests
Financial Verification
Operations Review
Sales/Marketing Assessment
Transition Planning
Growth Plan
Closing

There will be a lot of people involved in the process and it’s critical to keep it organized and start with a call between the buyer and seller. This sets the right expectations going forward.

“One thing that kills due diligence is when a buyer is send over an email every three hours. Keeping it all organized will ensure you don’t miss anything and move through the steps in a methodical process”

Key Tasks

Confirm P&L data
Show key financial trends
Explain operations by task and role
Breakdown key sales and marketing channels

What tools are used for Due Diligence?

There are hundreds of tools out there to help perform due diligence. Here is a link to a list of 60 tools that Centurica use for all of their DD clients.

Further to this, it’s really important to realise that there are still human interactions, people selling and people buying. A lot of times (more often than not) the potential buyer has not even purchased the product from the company. Often they have never been to the website and signed up for the email newsletter, talked to customer support, interviewed any of the employees. Tools are critical, but the human side of due diligence is more valuable than any tool.

Here is a link to a list of 60 tools that Centurica use for all of their DD clients. It’s really important to realise that there are still human interactions, people selling and people buying. A lot of times (more often than not) the potential buyer has not even purchased the product from the company. Often they have never been to the website and signed up for the email newsletter, talked to customer support, interviewed any of the employees. Tools are critical, but the human side of due diligence is more valuable than any tool.

Top 5 Due Diligence Issues

It is very rare that you get through a diligence process where no issues have come up. If nothing has come up, the due diligence process most likely has not been digging deep enough. All small businesses have issues that are potential risks. Here are the top 5 issues Centurica see when

1. Lack of bookkeeping/accounting

There are so many million dollar businesses that don’t use any accounting software. Xero does a fantastic job of this. Categorisation and verifiable transaction items is super important. If you have more than business make sure they are not commingled and it’s clear. Keep things clean for each business makes the sales process much easier. If you can hire a bookkeeper and let the experts take care of it.

2. Undisclosed violations or warnings

A lot if not most businesses have issues. This is ok. The issue arises when you are not forthcoming and do not talk about it with the buyer. If you get three weeks into the dd process and the buyer uncovers an issue, the buyer will start wondering what else you have haven’t told them about. Make sure people are aware of these issues so the deal doesn’t fall over at the 11th hour.

3. Transferability Issues

Some accounts with supplies can be difficult to transfer so make sure you have this in order being going to market.

4. Legal / tax issues

Make sure there are no outstanding tax issues that will roll over to the new owner. Work through this with the seller. Ensure taxes are registered and properly collecting taxes where you should be. Always check for trademarks. Some factories overseas have started to trademark American brand names and register a trademark overseas in China. If you are selling and you are an established brand Centric recommend doing a search overseas and registering trademarks in Europe and anywhere else you think you might trade in the future.

5. Loss of trust

This is the most common due diligence issue. All of this can be resolved by being upfront and transparent with the buyer. As soon as this is gone, it is the number one deal killer. You very rarely recover from this.