Whether you are buying a business or selling your own business, due diligence is an essential step that must be taken in any business acquisition. This process is the risk assessment of the business. Whether buying or selling a company, do not undertake this on your own, consult your solicitor.
Essential Points
What comes under scrutiny in this process are any financial, legal, commercial, or reputational risks the target company may be exposed to. The person conducting the due diligence will be seeking to confirm that the state of the business is as presented and that there is no concealed information that could affect the value of the business or indeed undermine it. The legal due diligence will look at any binding contracts the company has entered into, whether there are any potential legal actions that could be taken and that the company is compliant with legislation. The financial due diligence will assess the company's accounts to include its balance sheet and tax liabilities.
The reputational due diligence will explore the company’s reputation in the industry it is working in and to find out if there is anything a buyer should be concerned about.
The time involved will depend on the size of the business. Obviously, the bigger the company the longer it will take. But the process is important for the buyer as it gives them comfort that no surprises will emerge after the deal is completed for which, as owner, they may find themselves liable.
Your solicitor will have a checklist for the process so everything will be covered. In a way due diligence is like insurance, if properly done, the business you purchase will be exactly as it was presented to you, and you will not have the worry of any issues or problems presenting themselves that could threaten or damage the business.