Due Diligence Explained
Due diligence is a comprehensive information seeking exercise into a business that is being sold and is carried out by the buyer and the buyer’s solicitor.
You should not embark on this process without the guidance of your solicitor and a confidentiality agreement in place to protect commercially sensitive information. Certain information you will want to withhold until completion such as customer lists.
Dependant on the nature of the business and type of assets being sold due diligence questions and information requirements will include:
- full list of assets being acquired
- details of liabilities (e.g. creditors, HP arrangements)
- number of employees, copies of employment contracts, employee issues
- intellectual property rights
- contractual arrangements e.g. credit agreements, cleaning contracts, guarantees, marketing, distribution, agency, licensing, supply agreements
- factoring arrangements
- terms & conditions of business
- order process
- IT/related licensing
- health & safety procedures
- any litigation/potential litigation
- copies of accounts.
Be prepared for the onslaught of enquiries and information requests. Sourcing, copying and compiling a raft of information whilst trying to keep the process from staff and continuing to run your business is not an easy task.
Use trusted discreet staff members to help or put in place arrangements for someone to deal with some of your usual tasks so that you are free to concentrate on dealing with due diligence.
Get due diligence under way quickly but allow time for the process to work through – methodically, carefully and comprehensively. The more comprehensive your response to due diligence the firmer you can be in agreeing a tight sale contract with limited warranties and indemnities: in our next article we explain the nature of warranties and indemnities and why, as a seller, you should be firm in resisting them.
We are happy to give free, initial advice with no obligation. Please feel free to call.