Selling Your Business? Your 12-Month Vendor Diligence Plan
When selling your business, the goal is a smooth transaction at the best possible price. A common pitfall is waiting for a buyer to conduct their due diligence, forcing you into a reactive position. A vendor-initiated due diligence (VDD) process, started 12-18 months before a sale, flips the script. It allows you to identify and resolve issues on your own timeline, package the business attractively, and control the narrative. A well-prepared VDD report anticipates a buyer’s questions and provides credible answers, building trust and minimising the risk of late-stage price adjustments or deal failure.
Solidify Corporate Governance
A buyer expects a clean and compliant corporate structure. Any ambiguity or sloppiness in your company’s statutory records creates friction. Work with your advisors to ensure all Malta Business Registry (MBR) filings are up to date, the register of members is accurate, and all board and shareholder resolutions are properly documented and signed. If you have multiple shareholders, is there a clear, current shareholder agreement? Locating and organising these foundational documents early on prevents last-minute scrambles and demonstrates professional management.
Scrutinise Financial Reporting
- Audited Financials: Ensure your annual accounts are fully audited, signed, and compliant with GAPSME or IFRS, as applicable. Late or qualified audits are a significant red flag.
- Normalise Earnings: Work with your accountant to identify and quantify non-recurring or discretionary expenses (like one-off legal fees or personal expenses run through the company). A buyer will base their valuation on the business's sustainable, ongoing profitability. Presenting a clear, adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is critical.
- Management Accounts: Reliable, timely management accounts for the last 12-24 months are essential. A buyer will want to see consistent performance and understand the business's recent trajectory, not just the year-end statutory figures.
- Balance Sheet Health: Interrogate the balance sheet. Are there old, irrecoverable debts to write off? Are inter-company loan balances properly documented and commercially justifiable? A clean balance sheet gives a buyer confidence.
Resolve Tax and VAT Issues
Tax is one of the most sensitive areas of due diligence. Surprises here can kill a deal. Undertake a thorough review of your company’s tax position, covering corporate income tax returns, VAT filings, and employee-related taxes (FSS). Ensure all submissions to the Malta Tax and Customs Administration (MTCA) have been made correctly and on time. It is far better for you to discover and remedy a potential issue than for a buyer’s advisor to find it. This includes settling any outstanding tax arrears or disputes. Proactively managing your tax affairs demonstrates that the business is low-risk and well-run.
Review Key Contracts and Agreements
The value of your business is often locked in its contracts. Review all material agreements, including a sample of key customer and supplier contracts, employment agreements with key staff, and any property leases. Pay close attention to change-of-control clauses that could be triggered by the sale. Are key contracts assignable to a new owner? Are the terms clear and in force? Having a data room with organised, complete copies of these agreements is a VDD best practice that accelerates the buyer’s review process significantly.
Address Operational and Regulatory Matters
Finally, look at the business from an operational perspective. Ensure all necessary business licences are current and in good standing. If your business is in a regulated sector (e.g., financial services under the MFSA), your compliance history will be under a microscope. Even for unregulated businesses, compliance with GDPR and local employment law is critical. The trade-off is clear: investing time to fix these issues now prevents them from becoming negotiating points that erode value later.