Graham’s Guide Chapter 9: 

 

Due Diligence – Where Great Deals Are Confirmed or Lost

Many sellers believe that once an offer is accepted, the hard work is over. In reality, one of the most important stages is only just beginning.

Due diligence is the buyer’s opportunity to verify that the business they have agreed to purchase is substantially what they expected. Well-prepared businesses move through this stage smoothly. Poorly prepared businesses often experience delays, price renegotiations or, in some cases, failed transactions.

What is Due Diligence?

Due diligence is a structured investigation into the business. Buyers and their advisers review financial, legal and operational information to confirm the assumptions they relied on when making their offer.

What Buyers Usually Review

·       Financial statements and management accounts

·       GST and tax records

·       Bank statements

·       Customer and supplier contracts

·       Employment agreements

·       Lease documentation

·       Plant and equipment schedules

·       Health and safety systems

·       Insurance policies

·       Licences and regulatory compliance

Be Open, Accurate and Organised

Answer questions promptly and honestly. If an issue exists, explain it early rather than hoping it won’t be discovered. Buyers are generally more comfortable with a known issue than with a surprise uncovered late in the process.

Keep Running the Business

One of the biggest mistakes owners make is becoming so focused on the sale that they stop managing the business. Maintain customer service, retain key staff and continue making sensible commercial decisions. Buyers expect the business to perform consistently through to settlement.

Graham’s Tip

A due diligence request isn’t a personal criticism. It’s a normal part of buying a business. Respond professionally, stay calm and focus on providing clear information.

Broker’s Desk

The smoothest due diligence processes usually begin months before the business goes to market. Good preparation builds confidence and keeps momentum on your side.

Common Reasons Deals Stall

·       Incomplete or inconsistent financial information.

·       Undisclosed legal or employment issues.

·       Poor communication between advisers.

·       Slow responses to buyer questions.

·       Unexpected changes in business performance.

Action Checklist

·       Prepare a due diligence folder before marketing begins.

·       Respond promptly to information requests.

·       Keep trading normally.

·       Keep your broker, lawyer and accountant informed.

·       Disclose issues early and accurately.

Looking Ahead

Once due diligence has been successfully completed and conditions have been satisfied, the transaction moves towards becoming unconditional. The next chapter explains the legal process, settlement preparation and what happens in the final days before ownership changes hands.