When looking to buy or if you are selling a business, there is a process known as due diligence that the business for sale must undergo. It can be a long process but is worthwhile to instil confidence in you, the potential purchaser of a business and to ensure a proper handover of the business when sold. But what exactly is due diligence and why is it imperative to do it meticulously? Let’s discuss the importance of due diligence.
What is Due Diligence?
Due Diligence is essentially an audit process of verification and investigation. It is undertaken regarding a potential deal or investment opportunity to confirm that all facts, financial information and information that has been divulged is true and correct and the selling party has not embellished any of the facts or figures that have been provided. It is imperative that an appropriate level of due diligence is undertaken before any contracts are signed or deals are finalised.
If you are looking to purchase a property or investment, extensive due diligence is important. It helps to ensure that what you are purchasing is actually what you have been told. When purchasing a business there are many different pressure points that need to be analysed and because most people and businesses don’t do this regularly many do not know where to begin looking for issues that may arise.
It is essential that the due diligence process is done meticulously. This process will enable you as an investor to fully understand the nature and risks of the deal and allow you to make a well-informed investment decision. Some of the key areas where due diligence should be undertaken include:
- A complete overview of the target company;
- An in-depth analysis of the company financials;
- Review of current plant and equipment, technology and patents;
- Understand if the company offers the correct strategic fit;
- Review of current management structures and workforce;
- Analysis of any legal issues from the past and present, as well as an understanding of future legal risks;
- Review current information technology in use;
- Review of customers and suppliers, and;
- Review of current marketing strategy in place.
This is not an exhaustive list of due diligence requirements and each company will have different key areas that need to be analysed.
Further, a due diligence audit helps you to gain a greater understanding of the business you are potentially acquiring. Due diligence is important as it helps you to learn about:
- prospective earning capabilities
- the position and competency of management
- who the company primarily deals with in regards to customers and suppliers
- the assets and liabilities of the business
- the business’ financial position
- the history of the business
If you are considering buying a business, it is important that you seek the advice of professionals with proven expertise and experience in conducting due diligence audits. At The Quinn Group, our dedicated team of lawyers, accountants and auditors work closely together to ensure a comprehensive due diligence process.
For expert advice and guidance with respect to due diligence or buying a business, contact our team of tax accountants, lawyers and mergers and acquisitions specialists by submitting an online enquiry form, calling us on 1300 QUINNS or alternatively, +61 2 9223 9166 to arrange a teleconference or appointment.