Financial Due Diligence on the Purchase or Sale of a Business - Ad Valorem

What is Company Due Diligence?

Due diligence is a comprehensive appraisal of a business that is taken by a prospective buyer before deciding to buy or invest in the business.

During the financial due diligence, the company’s financial statements, tax returns and tax records will be reviewed in order to identify any financial risks or discrepancies.

Why is Due Diligence Necessary?

The due diligence process is a comprehensive exercise designed to identify any historical issues or potential future issues the company may face. The due diligence process looks at the historical records of the company to see if there were any inaccuracies or issues with the preparation of those records. This may also include the effect of any anticipated changes to the legislation which can affect the business. This can help identify if, due to any issues in the past or any potential changes in the legislation, there is a risk posed to the company in the future.

As the new buyer would not have been involved in the historic decisions of the company, the due diligence process allows the buyer to identify whether the historic decisions could create a liability for the company post-purchase.

Having knowledge of these risks can help the buyer make a more comprehensive decision. The process is designed to protect the buyer by allowing them to identify these issues prior to the sale in order to get specific warranties and indemnities in place.

The due diligence process can also be a useful bargaining tool for a prospective buyer. The buyer will use any information uncovered during the due diligence process to make an informed decision on the amount they are willing to offer for the business.

The length of time this process can take usually depends on the size of the business, but it is not a service which should be rushed, as this could lead to severe issues post-sale.

How can Ad Valorem Help?

Ad Valorem can provide a comprehensive due diligence service either for someone looking to buy a business or for those who are looking to sell their business. We can provide a detailed and comprehensive service to ensure that any potential issues with the business are brought to light prior to the purchase or sale to ensure the business which you are investing has a solid foundation.

We also offer a pre-sale due diligence process for those looking to sell their businesses. This service will help businesses who are planning to sell in the near future but are quite ready to go to market. This service will give the business the opportunity to identify any issues which could affect the sale, thereby lowering the risk that the prospective buyer backs out from the sale, or lowers the price they are willing to offer.