Buying a Business - things to investigate

What Should I Investigate When Buying a Business?

Typically, a buyer undertakes due diligence on the business it is purchasing to gain a comprehensive insight into that business and, with this knowledge, decide whether to proceed.

The following is a list of potential key issues a prudent buyer may want to investigate.

Corporate History

• Does the company maintain its required statutory registers, including recording who the shareholders are?

• Has the company carried out any share buybacks? A strict company law procedure must be followed and failure comply may result in the buyback being void (and the shares still held by the old shareholder).

• Have any share options been issued to the company’s employees?

• Are there are problems with the company’s records or Companies House filings?

This is particularly important. A prudent buyer will want to be confident that, after it has purchased the company and its goodwill, it will not find itself with an unexpected co-owner or shareholder.

Company’s Finances

• What loans or other credit facilities has the business taken out?

• Are there any directors loans?

• Does the company have any charges over its assets?

• Have the sellers given any personal guarantees for the business’ liabilities? If so, the sellers will likely want these to be discharged as part of the sale and the lender may require you to provide a replacement guarantee.

Customer and supplier information and risks

• What are the key contracts?

• Are there any change of control clauses in the contracts giving the supplier/customer the right to terminate?

• How long do the company’s customers take to pay and are there any bad or doubtful debts?

Assets

• Does the company have a list of its assets?

• Are any assets on lease or hire terms?

• Does the business have a lot of stock and is any of it obsolete or slow-moving?

• What intellectual property does the company have or use?

Legal implications

• Are there are current or pending claims against the business?

• Does the business have the permits and licenses it needs?

Employees

• What are the employees paid and what are their other key terms of employment?

• Are any employees on a long-term absence?

• Does the business use consultants or contractors?

• Has the business complied with TUPE?

Properties

• Does the business own or lease any property?

• What are the key terms of the lease(s): term, annual rent, service charge, restrictions?

• Is the property in a good condition and are there any dilapidations?

The Purpose of Due Diligence

This is not an exhaustive list, but it highlights issues that could lead to complications down the line. Most importantly, proper and effective due diligence should allow you to:

• understand the company’s liabilities;

• decide if you want to proceed with the transaction;

• highlight key areas of risk/concern which may require indemnity protection and/or an adjustment to the purchase price; and/or

• obtain management and operational information for the business moving forwards.
  
  

How We Can Help

At Lawson West, our expert solicitors can advise you on the best course of action and how to overcome any obstacles as they arise.

Our approach is to provide comprehensive support and guidance throughout the transaction. We work alongside you to navigate challenges, answer your questions and ensure a successful outcome. By having experienced professionals by your sides, you can confidently proceed with your business acquisition.

Please contact us on telephone 0116 212 1000 or 01858 445 480, alternatively complete the free Contact Us form and we will get in touch as soon as possible.

 

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