Due diligence is the process of careful investigation by a Buyer of the legal and financial circumstances of the business that they intend to buy.

Legal due diligence is usually conducted via solicitors, and financial due diligence conducted by accountants. Both solicitors and accountants will liaise to ensure that any concerns raised during the due diligence process are adequately addressed in the sale contract.

From a legal perspective, the Buyer’s solicitors will send a due diligence questionnaire to the Seller’s solicitors. This includes requests for written responses, and also requests for documents which is likely to include things like:-

• Copies of insurance documents (buildings, contents and employers liability);
• Information about disputes / complaints;
• Inventory list (and excluded items list);
• Terms and conditions of employees;
• Data about customers / suppliers;
• Property queries (known as CPSE’s);
• Evidence of compliance with laws;
• Licenses (music / television);
• Sector specific detail.

Although this list is lengthy, it is not extensive. The actual enquiries that may be raised will depend on the solicitor that represents the Buyer, and the Buyer’s own specific requirements.

Due diligence is an extensive process, in order to allow the Buyer to thoroughly and completely assess the business, assets, capabilities, and financial performance. It is also protective of the Seller, as due diligence forms part of disclosure, which is your principal form of protection under the sale agreement.

Therefore, the importance of providing a Buyer with a single full set of written responses to their due diligence questionnaire, along with a full suite of supporting documents in a timely and orderly fashion cannot be overstated. Incomplete or delayed responses to enquiries will likely cause delay to any sale, and eventually lead to you needing to spend more time on such paperwork. In addition, hard work from the outset will reduce the scope for post-completion disputes and enable the deal to complete more smoothly, which is of course in your best interests.

If you are considering selling your business, or interested in early discussions, we can help to expedite the process. Our expert Corporate Law team can help to ensure that the enquiries stage of the transaction is as smooth and efficient as possible.

“Brabners in Lancashire is located at Sceptre Court, Walton Summit. If you would like to discuss anything raised in this article, please give us a ring on 01772 823921, quote “Lancashare” and a member of our team will be happy to assist you. 

If you would like to receive more content like this, please head to our website where you can subscribe to receive regular updates of current articles and events.“