11 Steps to Prepare for Due Diligence: Essentials for a Successful Retail Acquisition

Preparing for your cannabis retail store to be purchased can be a major milestone. Not only does it represent a financial outcome, but it also requires a commitment of time and resources. Many acquisitions take much longer than necessary because the due diligence process is not smooth. As a retail cannabis store owner you can prepare for the due diligence process.

Here are 11 steps to follow to help you through the process:

1. Define what makes your store interesting from an acquisition perspective: Consider factors such as location, size, target market, co-tenants and potential for growth.
2. Prepare to present market research.  The market research should include details of where the store operates, profiles of the competition and potential for success. Look at factors such as the local economy, demographics, and consumer spending habits. Extra helpful can be trends in gross margin and how pricing compression has impacted the market.
3. Prepare and review financial statements: Carefully review your financial statements of the store. Look for inaccuracies or red flags such as declining sales, aging inventory  or increasing debt, how can you explain these? 
4. Evaluate the store’s physical condition: Take a close look at the store’s physical condition, interior cash desks and fixtures as well as the condition of the building and any necessary repairs or renovations. 
5. Assess the store’s inventory: Review the store’s inventory to get a sense of the quality and quantity of products sold. How much inventory is 30, 60, 90 days old? What percentage of inventory drives the majority of the sales? Reduce aging inventory and prepare insights for the potential acquirer about well performing products.
6. Prepare a profile of the store’s management and employees: It’s important to share a sense of the store’s management and employee culture. Outline the store’s operations and team dynamics and how the store runs today.
7. Review the store’s leases and contracts: Carefully review any leases or contracts that the store is a party to, including any equipment leases or supplier agreements.
8. Prepare the store’s customer base: Get a sense of the store’s customer base and their purchasing habits. This can add a lot of additional value. Do you have contact information for the customers? Is it loaded into an accessible CRM? How many customers are in your top 20%?
9. Review any legal issues: Work with a lawyer to review any legal issues or potential liabilities associated with the store.
10. Outline the tech stack of the current retailer. Are there synergies in the technology being leveraged to run the business, or will there need to be changed?
11. Determine the purchase price: Based on all of the above due diligence, work with a local advisor to determine a fair purchase price for the store.

Preparing thorough due diligence is essential for a successful retail acquisition. By following these 11 steps, you can be confident that you have a clear understanding of your store's value and can speed up the acquisition process.