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Business due diligence Newcastle
Undertaking due diligence is a vital process to ensure your deal delivers to and beyond your expectations. Let our advisors help you, experts in business due diligence in Newcastle.
When buying a business, the vendor can tell you about their operation, but how do you know it is true?
Due diligence is a pivotal step in the process of purchasing any business to ensure any new acquisition offers real business and financial benefits. Our business advisors can help you understand the complete landscape in which the business operates and identify potential risks you may face.
Learn more about due diligence, and contact us for a due diligence assessment in Newcastle today.
What is due diligence?
Due diligence is a verification process of the information provided by the vendor and helps provide confidence in your business purchase decision. Regardless of whether you are a large, medium, or small entity, it is vital to complete due diligence checks before purchasing a business.
Partnering with our business advisory accountants to undertake your due diligence will help you determine key financial, commercial, and operational factors, identify risks, and assess the true value of the business.
We will walk you through our due diligence checklist in Newcastle, enabling you to proceed with confidence, amend the deal to mitigate risks, or recommend walking away from unsuitable deals.
What are the benefits of due diligence when buying a business?
Due diligence provides a holistic view of the business, considering the inherent value of the company, other bidder activity, potential synergies, and your capacity to fund the acquisition.
You want to acquire the business at the right price, based on a comprehensive understanding of its existing obligations, financial health, and strategic positioning.
The benefits of due diligence for the buyers are:
- An understanding of the financial viability, including revenue and earnings drivers
- Gauging the level of risk involved in the transaction and potential ways to mitigate this
- Discovering the business’s obligations, both known and unknown, and the impact on future performance and cash flows
- Unearthing any issues with the deal early to either reassess, modify and proceed, or walk away
- Determining the level of gearing that the business can withstand.
The benefits of due diligence for vendors are:
- Providing potential buyers with comfort and assurances of the deal
- Helps to reduce your own business disruption and ensure smooth transfer to new owners
- Can aid in securing a higher price for your business and/or property
- Assists in managing the timing and process of the sale.
Due diligence and deal structure
Due diligence is a dual accounting and legal process. We can recommend and work closely with lawyers to help advise on how best to structure your deal.
Our advisors will discuss with you the different ways to structure the deal, whether it be purchasing shares or the business assets, and the risks and benefits of each. If purchasing shares, the due diligence process becomes even more important as it means you inherit the history of the company and its liabilities.
We will work closely with your legal representation to help ensure your due diligence is comprehensive and complete. Contact us for expertise in business due diligence in Newcastle.
Advice for your business
The top recommended due diligence checklist in Newcastle
When you first look at a business basic information will be supplied. However, in some cases the owner of the business will be reluctant to reveal too much about the business until an offer is made.
Many aspects in the operation of a business are commercially sensitive and confidential; thus, a business owner would be prudent in withholding until there is a serious intention to purchase or conditional offer subject to due diligence.
Due diligence involves analysing all the below information to form a holistic view of the value and risk of the prospective business from an accounting and legal perspective.
Contact us for a due diligence risk assessment in Newcastle. We have extensive experience in the area and can provide reliable recommendations ahead of your purchase.
FINANCIALS
Three to five years of tax returns, BAS, records of account receivables and payable, balance sheets, profit and loss records, cash flow statements and sales records. How is the business performing? What are its outgoings? Does the business have any outstanding debts?
TAX
Calculating the tax on the transaction, any stump duty and GST implications.
LEASE
How long is the lease? Will the landlord agree to the transfer of the lease into your name? Will you have to negotiate a new lease? How much is the rent and other associated outgoings?
STAFF
How many employees? And what are the current employee’s outstanding entitlements? Understanding any key and non-essential employees.
LICENSES & PERMITS
Does the business have all correct and up-to-date licences and permits required to run the business?
LEGAL DOCUMENTS
Are there outstanding agreements between the seller and suppliers?
ASSETS
What assets does the business have? Does it have any intellectual property?
INVENTORY
How is the inventory managed and stored? Will inventory on hand be included in the purchase price? Slow moving stock or provisions required.
STATUS OF PLANT, EQUIPMENT & FIXTURES
What kind of equipment and machinery does the business own? Are they in good working order and licenced?
ROI
What will be your return on investment?
PRICE
Is the business within your budget and can you fund the purchase?
Advice for your business
FAQs about business due diligence
How long should the due diligence process take?
The duration of the due diligence process can vary depending on several factors, including the size and complexity of the transaction, the industry, the scope of the due diligence, the availability of information, and the responsiveness of the parties involved.
Generally, the due diligence process can take anywhere from a few weeks to several months, depending on the specific circumstances. In some cases, due diligence may take longer if there are issues that require additional investigation or if there are delays in obtaining information from the target company or third-party sources.
It's important to note that while due diligence can take time, it's a critical part of the transaction process that helps to mitigate risks and ensure that the parties involved have a thorough understanding of the target company's operations, financial performance, and potential liabilities. Rushing through the due diligence process could result in important issues being overlooked, which could ultimately lead to costly mistakes or failed transactions.
The timeframe for completing due diligence should be established at the beginning of the process and communicated clearly to all parties involved. This can help to ensure that the due diligence process is conducted efficiently and that all parties have realistic expectations regarding the timeline for completing the transaction.
What are the risks associated with not conducting due diligence?
Not conducting due diligence can result in several risks for both the buyer and the seller, including:
- Financial risk: Without a thorough review of a company's financial records, the buyer may unknowingly inherit significant financial liabilities, such as outstanding debts, unpaid taxes, or unreported losses. This can lead to significant financial losses for the buyer.
- Legal risk: The buyer may be exposed to legal risks, such as pending lawsuits, regulatory compliance issues, or contract disputes, which can result in costly legal battles and reputational damage.
- Operational risk: Without a detailed review of a company's operations, the buyer may inherit operational inefficiencies, such as outdated technology, poor inventory management, or inadequate employee training, which can negatively impact the company's performance.
- Reputational risk: Not conducting due diligence can result in reputational risk for both the buyer and the seller. If the buyer discovers undisclosed issues or unethical behaviour after the acquisition, it can damage the reputation and brand.
- Compliance risk: Without a thorough review of a company's compliance with regulations and industry standards, the buyer may be at risk of non-compliance, which can result in regulatory fines, penalties, and reputational damage.
- Loss of business value: If the buyer discovers significant issues during due diligence, they may renegotiate the terms of the deal, resulting in a lower purchase price and loss of business value for the seller.
Overall, not conducting due diligence can lead to financial losses, legal battles, reputational damage, and loss of business value for both the buyer and the seller. It is essential to conduct a thorough due diligence process to mitigate these risks and make informed business decisions.
How do you ensure confidentiality during due diligence?
Ensuring confidentiality during due diligence is essential to protect sensitive information and prevent any unauthorised disclosure that could harm the company's reputation or business operations. Here are some ways to ensure confidentiality during the due diligence process:
- Use non-disclosure agreements (NDAs): NDAs are legal agreements that prohibit the disclosure of confidential information without the consent of the disclosing party. Companies should require all parties involved in the due diligence process to sign NDAs to protect confidential information.
- Limit access to confidential information: Companies should limit access to confidential information to only those who need to know. They should also consider using secure data rooms with access controls to ensure that confidential information is only accessed by authorised individuals.
- Redact sensitive information: Companies can redact sensitive information, such as tax file numbers, bank account numbers, or sensitive customer data, before providing documents to the due diligence team.
- Monitor activity: Companies should monitor activity during the due diligence process to ensure that confidential information is not being accessed or disclosed without authorisation. They can use secure data rooms or other tools to track activity and detect any potential security breaches.
- Establish protocols for sharing information: Companies should establish clear protocols for sharing information during the due diligence process. This can include providing information on a need-to-know basis, requiring approval for sharing information, and limiting the scope of information shared.
Overall, ensuring confidentiality during the due diligence process requires a combination of legal agreements, access controls, redaction, monitoring, and clear communication protocols. By implementing these measures, companies can protect sensitive information and minimise the risk of unauthorised disclosure during the due diligence process.
What are the differences between buy-side and sell-side due diligence?
Buy-side due diligence and sell-side due diligence are two different types of due diligence processes that are conducted by different parties and for different purposes.
Buy-side due diligence is conducted by the buyer of a business or asset, and its purpose is to assess the risks, opportunities, and value of the target business or asset before acquiring. The focus of buy-side due diligence is to identify potential deal-breakers and to assess the financial and operational performance of the target. The buyer typically engages a team of advisors, including accountants, lawyers, and other professionals, to conduct the due diligence.
Sell-side due diligence, on the other hand, is conducted by the seller of a business or asset, and its purpose is to prepare the business or asset for sale and to facilitate a smoother transaction process. The focus of sell-side due diligence is to identify and address any potential issues that could negatively impact the sale process or the value of the business or asset. The seller typically engages a team of advisors, including accountants, lawyers, and other professionals, to conduct the due diligence.
Both buy-side and sell-side due diligence are important processes that can help to mitigate risks and ensure successful transactions.
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Contact us for a due diligence risk assessment in Newcastle
The collation of the above documentation can be a timely process and the analysis of it requires a high level of business and legal acumen and experience. It is recommended you engage specialist business advisory services to help guide you in your purchase decision.
We regularly work with several lawyers specialising in business due diligence in Newcastle, and are happy to make recommendations.
If you are looking at purchasing a business contact our business advisors. Providing peace of mind for you and your business.
