During due diligence, the buyer examines your business's financial records, legal obligations, commercial relationships and operations to confirm that the information provided is accurate. As the seller, you will usually need to supply supporting documents, answer questions and explain any potential risks. The findings may influence the final purchase price or transaction terms.
Buyers typically investigate three main areas:
- Financial information: Annual accounts, management accounts, cash flow, tax records, debts and other financial commitments.
- Legal and commercial matters: Customer and supplier contracts, employment agreements, property arrangements, intellectual property and any ongoing disputes.
- Operations and business risks: Management responsibilities, employee dependencies, operational processes and factors that may affect performance after completion.
For example, a buyer may request additional information if your financial statements show significant changes in profitability or a high dependence on one customer.
Preparing an organised set of documents and responding accurately to enquiries can help the process run more smoothly. Sensitive information should be shared through appropriate confidentiality arrangements.
Read more: What Happens During Due Diligence When You Sell a Business?
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