Due diligence is an important stage in the business sale process and typically occurs after a buyer and seller have reached an agreement in principle or entered into a contract that is subject to certain conditions.
During this stage, buyers conduct their own investigations to better understand the business and assess whether it aligns with their commercial objectives. The purpose of due diligence is to allow buyers to review relevant information before proceeding to settlement.
The information provided on this page is intended as general guidance only and should not be considered legal, financial, taxation, accounting, or professional advice.
What Is Due Diligence?
Due diligence is the process by which a prospective buyer reviews various aspects of a business before completing a transaction.
The scope of due diligence will vary depending on the type of business, industry, transaction structure, and buyer requirements.
Areas commonly reviewed may include:
Buyers should obtain independent professional advice where appropriate when conducting their investigations.
Reviewing Business Information
As part of the due diligence process, buyers may review a range of business documentation to gain a better understanding of the business operations and commercial position.
Examples may include:
The information reviewed will depend on the nature of the business and the requirements of the buyer and their advisors.
Responsibilities During Due Diligence
During the due diligence period, the seller will generally continue operating the business in the ordinary course of business unless otherwise agreed by the parties.
Buyers are responsible for conducting their own investigations and obtaining independent advice from appropriately qualified professionals, including legal, financial, taxation, and accounting advisors where required.
The extent of investigations undertaken remains the responsibility of the buyer.
Finance & Contract Conditions
Many business sale agreements contain conditions that must be satisfied before settlement can occur.
These conditions may include:
If conditions are not satisfied or waived within the required timeframe, the agreement may be affected in accordance with the terms of the contract.
Settlement Preparation
Once due diligence and contract conditions have been addressed, attention generally turns to settlement preparation.
This stage may involve:
Specific requirements will vary depending on the transaction and contractual arrangements.
Settlement
Settlement is the stage where the transaction is completed in accordance with the agreed contractual terms.
Activities that may occur at settlement include:
Settlement requirements will vary between transactions and should be managed in accordance with the relevant contractual documentation.
Post-Settlement Handover
Following settlement, there may be a transition period to assist with the transfer of business operations.
Depending on the agreement between the parties, this may include:
The scope and duration of any handover period will depend on the specific terms of the transaction.
Confidentiality & Restraint Obligations
Business sale agreements may include confidentiality and restraint provisions designed to protect the interests of the parties involved.
These provisions can vary depending on the transaction and may include:
The terms and enforceability of these arrangements should be reviewed with independent legal advisors.
Understanding the Business Sale Process
Due diligence forms an important part of the overall business sale process, helping buyers better understand the business they are considering acquiring.
Proper preparation, clear communication, and professional advice can help facilitate a smoother transaction experience for both buyers and sellers.
At Manan Business Sales, we assist in coordinating communication and supporting transaction progression throughout the buying and selling process.
*The information provided on this website is for general informational purposes only and does not constitute legal, financial, accounting, or investment advice. Manan Business Sales makes reasonable efforts to ensure that information is accurate at the time of publication; however, no warranty or representation is given as to the accuracy, completeness, or reliability of any information provided. All business information, financial data, and representations are supplied by vendors or third parties and have not been independently verified unless otherwise stated. Prospective buyers and sellers must undertake their own independent enquiries and due diligence and are strongly encouraged to seek professional advice from qualified legal, financial, and accounting advisors before making any decision. Manan Business Sales acts as an intermediary only and does not guarantee the outcome of any transaction, including the sale, purchase, timing, or performance of any business. To the maximum extent permitted by law, Manan Business Sales disclaims all liability for any loss or damage arising from reliance on information provided on this website or in connection with any business transaction.*
