Video 4 – Due Diligence When Selling a Business

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Okay. Due diligence, which is basically an audit on the business before money changes hands, never in the interests of the seller, always in the interest of the buyer. So, top tips for getting through and surviving due diligence with no check on price, Steve.


Preparation. So again, it’s no secret what they’re likely to ask for during due diligence, so we can prepare for that, help our clients prepare for that in terms of them going to market, and getting ready once they find their preferred bidder. Then control would be my view, controlling the process. I mean there could be 500, 600, 700 questions asked by a collection of professional parties in legal, financial, tax, commercial insurance. And so part of our role is to project manage the detail of those exchanges and record all of the information that moves and breathes during the process. So there’s a really open factual record of exactly what’s been done.


And Mike, any nightmare in due diligence that you would covet the position?


Absolutely not Rob. They’ve all gone swimmingly [crosstalk 00:01:23]. I think just to answer the first question, what does due diligence involve? Everything. Quite literally is an audit of the business from day one for the buyer, and in that process the buyer wants to explore every eventuality. Typically, the areas that come up most in due diligence tend to be either commercial. By commercial, we mentioned shareholding in an earlier question, one of my nightmares that has come up is where people haven’t counseled down previous share option schemes properly. So, you’ve had exiting employees who still are vested shareholders in the business in theory, even though they may not know it. And the alternative therefore for the buyer is either to go out and find each and every one of those particular ex-employees, sometimes over multiple years, or try and find a way of restructuring the shareholding. That can be a nightmare, and that has come up at least twice in the last couple of years. But everything will be covered during the due diligence process.


Top tip, if your accountant is not up to the job, change them, because it could be PWC, big four accountancy firm at the other side of the table going through your financials with a fine tooth comb. If you’ve outgrown your accountant, change them, because it could cost you a deal.

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