Part Two: Being Due Diligence Ready
Welcome to Part Two of our seven-part series, guiding business owners through the journey of selling a business. In this article, we explore how to prepare your business for due diligence – the detailed examination that can make or break a deal. To jump to another section:
- Part One: Assessing Readiness and Appraisal
- Part Two: Being Due Diligence Ready
- Part Three: Preparation for a Transferable Business
- Part Four: Buyer Research and Profiling
- Part Five: A Professional Negotiation
- Part Six: Deal Structures and Payments
- Part Seven: Post-Deal Transition
Once you’ve completed a realistic appraisal and made the decision to sell, the next step is to prepare for the scrutiny that will follow. Due diligence is more than a financial review, it’s a comprehensive investigation into every aspect of your business, from legal compliance to client contracts. The more prepared you are, the more confident a buyer will feel, and the smoother the path to completion.
What is Due Diligence and Why Does it Matter?
Due diligence is the buyer’s process of verifying that your business is exactly what it appears to be. It typically includes checks across:
- Financial performance and accounts
- Tax compliance
- Contracts and leases
- Staffing and operations
- Intellectual property
- Regulatory or legal exposure
The goal is to identify any risks or discrepancies that might affect valuation or the terms of the deal. If the buyer discovers unexpected liabilities, it can lead to price reductions, delayed timelines, or even complete withdrawal.
How to Get Due Diligence Ready
Getting ahead of due diligence is a competitive advantage. Proactively organising your documents, resolving loose ends, and working with your professional advisers to anticipate potential red flags allows you to control the process.
Key steps include:
- Collate Financial Records: Ensure management accounts, tax filings, bank statements, and forecasts are all available and accurate. Ideally, provide at least three years of consistent, clean financial records.
- Review Legal Documents: This includes articles of association, shareholder agreements, property leases, employee contracts, insurance policies, and IP registrations. Everything must be up to date and legally sound.
- Secure Client and Supplier Contracts: Buyers will want to know that major contracts are legally binding, assignable, and not at risk of immediate termination upon sale.
- Resolve Disputes or Compliance Gaps: Unresolved litigation, overdue taxes, or expired licences will raise red flags. It’s better to address them before going to market.
- Staffing and HR Matters: Review employment contracts, pensions, and any historic grievances. A strong, stable team with clear contracts will support a higher valuation.
Work with Your Advisers
At Altius Corporate Finance, we guide sellers through the sale preparation process to ensure you’re ready for buyer scrutiny and necessary post-offer activity.
A prepared seller is a credible seller. When buyers see well-organised, transparent documentation, they are more likely to proceed with confidence, often with fewer conditions and shorter timelines. Having a trusted and experienced lawyer, accountant, and business broker working in sync are crucial, especially at the due diligence stage.
Think About the Buyer’s Perspective
Buyers will be concerned with sustainability, scalability, and the potential for growth. Be ready to demonstrate that:
- Revenue is reliable and not over-reliant on one or two clients.
- Systems and processes are documented and repeatable.
- Key staff are likely to remain post-sale.
- There are no ‘hidden’ dependencies (for example, reliance on the owner’s relationships).
The more you can show that the business runs independently and efficiently, the more appealing it becomes.
Read more: Selling Your Business, Due Diligence Essentials
Next Step: Preparation for a Transferable Business
Being due diligence ready is about more than paperwork – it’s about presenting your business as stable, organised, and low-risk. By anticipating and addressing concerns in advance, you lay the foundation for a stronger negotiating position and a smoother sale process.
In the next article, Part Three: Preparation for a Transferable Business, we’ll explore how to make your business attractive and operationally transferable to a new owner.
For tailored advice or a confidential discussion about preparing your business for sale, contact Altius Corporate Finance.
