Undergoing due diligence when selling your business

Once initial sale terms are agreed your buyer will review commercial aspects of your business - such as contracts, staff and key customers - to ensure the claims you have made about the business are accurate. This process is known as due diligence.

Don't start due diligence until you have agreed a price and terms with the buyer. The investigation period is negotiable and normally runs simultaneously with the legal process as the two are linked, although all sales are different. The process can be speeded up if you and your staff are as co-operative as possible.

Your buyer and their advisers will probably need to spend some time at your business' premises reviewing original documentation, but try to ensure as much work as possible is carried out off-site. The process must be controlled to guard against it being used as an excuse for renegotiating the deal.

What does due diligence cover?

The due diligence process is likely to cover:

• the business' past and forecast financial performance
• accounts
• valuation of property and other assets
• legal and tax compliance
• any outstanding legal action against the business
• major customer contracts
• intellectual property protection

The final sale agreement

As the due diligence process nears its conclusion you and your advisers should finalise the sale agreement. This will contain the exact details of the sale, much of which should have been outlined in the heads of terms. There will have been compromise on both sides to obtain a final document that is acceptable. But you should maintain a dialogue with all parties to ensure the final agreement is acceptable and contains no hidden surprises about your future liabilities.

Your advisers should ensure you fully understand the terms of the agreement you are signing and the full extent of any indemnities and warranties you have agreed to. See understanding contracts when buying or selling a business.