Red Flag Due Diligence
Getting your business ready for sale
If you are considering selling your business in the near future, ensure that your house is in order and that any potential skeletons in the cupboard have been dealt with, before you present your business to a prospective buyer. Not only will this approach result in a smoother and quicker sale process, but, more importantly, it will limit the buyer’s ability to chip away at the price.
In respect of any proposed acquisition, the buyer will want to undertake a detailed due diligence process, whereby the buyer and its professional team investigate your business. It allows the buyer to assess the true position of your business before committing to the deal.
The investigations and questions are wide ranging, but are often split into three key areas:
- Financial Due Diligence - a detailed review of the most recent audited and management accounts, budgets and forecasts looking to establish that your numbers stack up.
- Legal Due Diligence - a detailed review of the company’s key legal commitments including contracts with suppliers and customers, employment and pension matters, property and environmental rights and obligations, loans and hire purchase agreements, intellectual property rights and litigation and disputes.
- Commercial Due Diligence - an often confidential review of the relationship between your business and your key customers and suppliers.
Which areas should you consider and/or review from a legal perspective, if you are considering selling your business in the short to medium term future?
- Corporate Structure - who owns the company and who makes up the board?
- Corporate Governance - do your current articles of association match how your business operates and makes decisions?
- Statutory Books - are these maintained and kept up-to-date?
- Companies House Filings - have you made all of the necessary filings?
- Shareholders’ Agreement - if there is more than one shareholder in the business, do you have a shareholders’ agreement in place?
- Contracts - do you have written contracts in place with your key customers and suppliers?
- Intellectual Property - are your intellectual property rights and licences properly protected, registered and accounted for?
- Employment - do all your employees have written contracts of employment? Is your company sufficiently protected if any of your key people decide to leave? Do you have adequate policies and procedures in place?
- Pension - does your business comply with all its pension auto-enrolment obligations?
- Data Protection - is your business GDPR compliant?
- Property - who owns the business premises? If you are occupying your premises under a lease, when does the lease expire and does the lease contain a break clause?
This is not an exhaustive list, but it should give you a good idea of how much there is to check!
How can we help?
We carry out a ‘red flag’ legal due diligence exercise for you in advance of a sale, whereby we review your business from the perspective of a potential buyer. We identify any areas of concern and help you resolve the points in advance of any sale, before they become an issue and a price negotiation tool for the buyer.
Get in touch
If you would like to find out more about red flag legal due diligence or if you are getting ready to sell your business, please get in touch with Marie Hoban or Daisy Divoka or give us a call on 0345 070 6000.