After a buyer and seller agree to the terms of sale, buyers initiate a review process to verify that the information presented by the seller is accurate and complete. Known as due diligence,

it can be a straightforward exercise if both the buyer and seller are well prepared. Buyers want to confirm the seller's representations and Sellers want to enhance the favorable qualities of the company.

There are numerous due diligence check lists available that were developed by attorneys, accountants and business transfer specialists. While these lists are helpful, business buyers should look past the check lists to gain a true understanding of the business prior to purchasing it. One of the tools I recommend that facilitates communications is the business plan.

The business plan portrays the operations of the company under new ownership and it is a wonderful opportunity for the buyer and seller to begin a working relationship. Sellers should be prepared to talk about revenue projections and the likelihood of achieving them. Buyers should discuss their ideas for growth and leverage their concepts using the seller's experience and knowledge.

A thorough understanding of the company's cost structure reveals historical operating practices and may suggest areas that need improvement. A review of the personnel budget and the company's key employees is invaluable to prospective buyers and it's a great opportunity for the seller to confirm that the post-closing business will continue to be successful.

Typically the seller will continue with the business, or consult with the buyer for a transition period after the company is sold. Most of my seller clients see the business planning process as part of the training and support buyers expect and welcome the opportunity to learn how prospective buyers plan to run the business.

Building a working relationship based on respect and trust is critical to successful closings. Planning for the company's transition and future is a good way for buyers and sellers to learn more about each other and their respective business transfer goals.

Written by Mark Richardson for the Society of Business Appraisers.