It’s important! If you’re thinking of buying a business you will want to examine all aspects of it before committing yourself. Due diligence is the chance for you to ask questions about the business – an investigation into the financial and commercial activities of the company. This would include the gathering, analysis and interpretation of financial, commercial, legal and marketing information. It involves looking closely at all the company’s records – statutory financial statements, management accounts, budgets, internal process controls, analyses and projections/forecasts and any insurance policies.
The first step in undertaking due diligence, is to evaluate the deal. A preliminary assessment is made of the key risks and future opportunities and a detailed investigation will follow.
There are many areas of due diligence that should be high on the prospective buyer’s list; employment terms and contracts, pensions, any outstanding litigation, major contracts, IT systems in place and many more. The most common problems that due diligence reveals are to do with employees, environmental matters, pensions and property.
A prospective buyer should ascertain:
- How good is the cash flow
- Are there any hidden liabilities
- Will key employees be staying with the company
- If there is a clear description of the product or service
- Any lease on premises is in order
- Have all articles of incorporation, tax registration certificates, board minutes etc. been provided
Commercial Solicitor Sarah Sillar says, ”Due diligence should be carried out as early as possible, so that any problems can be dealt with, it will not delay the sale process as it can be on-going with the production of the purchase agreement .” Seems like a mammoth task? Our Commercial team will be happy to talk to you about this – it’s all about asking the right questions and knowing the right places to look. If you need any further information on this please call 01202 499255 and Sarah or Matthew will be happy to discuss any questions that you may have.