Your Questions Answered…

10 Essential Questions: Due Diligence

If you’re thinking about buying or selling a business for the first time, you will no doubt have a vast range of questions. The answers below are designed to cover the basics and offer you further understanding of this area of commercial law.

 What is due diligence? It is an opportunity for the buyer to ask questions about the business. The seller’s answers will hopefully confirm assumptions made by the buyer about the business. It should identify any problems in the business. In some ways it is similar to doing a survey and asking questions when you buy a house.

 Are there different types of due diligence? Yes. An accountant will undertake tax and financial due diligence and a solicitor will handle the commercial and legal side. Specific, more in-depth, due diligence can be done on the most important things.

 What can I do if I discover problems? Buyers may pull out of the deal, renegotiate terms (price), ask the seller to resolve the issue before proceeding or accept that you are taking the business with that problem. Bargaining position will dictate your range of options.

 Are there any common problems that due diligence tends to identify? Yes, the most common problems tend to involve employees, property, environmental matters and pensions.

 Do you have any tips for sellers? Be well organised before the sale. This will help you answer the buyer’s questions quickly. Be honest and open – issues tend to come to light at some point. Trust will be damaged if cover-ups are discovered. Present the information neatly and index it so that information is easy to find.

 What can you do for buyers? We will help you ask the right questions. We will analyse the information given by sellers and report to you on it. We will identify problems and advise how best to deal with them.

 How long does the due diligence process last? It depends on the size and complexity of the business and usually the value of the transaction. Questions can be asked of the seller any time before completion and therefore due diligence may last the entire length of the transaction. However, the initial and most intense stage for deals with a value of less than £5million tend to last between a fortnight and a month from beginning to end.

 Will due diligence slow the sale process down? It shouldn’t. We take the view that it can be carried out while the purchase agreement and other documents are being produced in order to maintain momentum.

 When do you do due diligence? As early as possible so that any problems can be dealt with without holding up the rest of the sale.  Can due diligence help sellers? Yes, the purchase agreement will usually state that the buyer cannot bring claims for matters that they knew about before buying the business. So, the more the buyer knows, the less chance of them bringing a claim later. It may also be cheaper and easier for a seller to resolve problems that are identified before the business is sold.

This information sheet is a brief overview and is not intended to be a substitute for legal advice. If you have any questions or need legal advice please contact the team at WG Commercial on 02380 717717.