Monitoring Financials Throughout a Business Sale Process is Critical
The actual process of getting to Heads of Terms and through due diligence, post-sale planning, funding and legal can take several months. During this time, it is very important that the business revenue and profits keep tracking at what is expected by the buyer and any lenders.
It is very easy to just focus on the historical financials that were presented during the initial phase of finding a buyer and forgetting to update them all the way along and then suddenly finding at the end there was a downturn. Two things occur when this happens:
Firstly, any lenders will want to see final accounts and if there has been a downturn, they are likely not to lend as they no longer have confidence in the cash flows.
Secondly, the buyer is likely to lose confidence in the cash flow for the same reason. They will need these cash flows to pay any debt, deferred payments and possibly themselves...so if the cash flow is impacted, the financial model may no longer work.
The advantage to knowing there is a downturn early can possibly give the seller a chance to fix it before closing day, particularly if the downturn is just in a single month and possibly the quarter will look ok. Worst case, knowing about a downturn and stopping the process early saves both sides a substantial amount of time and money.
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