Legal advice on the due diligence process
A due diligence process is the term used for an investigation into a business undertaken by a potential buyer to evaluate its assets, liabilities and general health. It involves a close look at the company’s records, accounts history, budgets and business projections, contracts with employees, suppliers and customers to put together a picture of the target company. This allows the potential buyer to work out:
(a) Whether he/she still wants to buy the business; and
(b) whether he/she is still happy to pay the price offered; and
(c) whether there are any contractual protections he/she needs in the business purchase agreement.
If you are buying a business, it is essential you understand any liabilities you may be taking on and the financial health of the target business. On the flip side, if you are selling a business, it is essential that you know that the buyer understands exactly what he is taking on and the parties can negotiate where identified risk is to fall. The due diligence process gives you the opportunity to tell the buyer everything there is to know about the business so you can move on from the sale in the knowledge you are unlikely to be troubled by warranty claims.
The level of due diligence undertaken will largely be driven by you and will depend on the relationship between the buyer and the seller, and the size and nature of the transaction, the length of trading history of the business and the complexity of the business. It may be that you want to undertake the majority of this process yourself but I can help make sure you ask all the right questions, spot gaps in the answers and help you collate the information in a manageable form.
I am available to discuss your business law requirements with in person if geography permits or over the telephone. Legal Services for Business provides advice on company law to businesses across the South, the South East and London.