How to prepare for due diligence early
The best way to be prepared is to be organised. This may sound straight forward but there are many companies that do not have the process in place to produce due diligence production information in a timely manner.
Step 1 – Due Diligence Check List (see below)
- Be aware of what’s included in a due diligence and start preparing for it
- A specialist business advisor such as CMC will help focus you and map out a strategy for your exit
- If any part of your business assets includes Intellectual property (IP), you should conduct periodic intellectual property audits. Ensure you have all the necessary rights and are properly secured and maintained.
Step 2 – Establish processes
- Establish administration processes that encourage the coordination and tracking of all your business documents
- Contracts and business information should be stored in a central location and kept up to date.
- Meeting minutes, stock and ledgers with other records should be periodically reviewed for accuracy and completeness.
- Establish a simple way to track status and location of each contract and document. E.g. keep a database that notes not only the location of each material agreement but also the company’s major obligations such as agreements, expiration dates, payment dates and any other relevant information.
- Keep all documents in electronic PDF format. It’s more manageable and reduces time and costs distribution.
- To be really organised, you could keep an up to date due diligence binder that can be copied and distributed at very little notice.
Step 3 – Reviewing documents
- Set a procedure to periodically review these documents to ensure all contracts are complete and compliant with all its obligations under such agreements.
- Review on a consistent basis. Include a review of any pending obligations and verbal commitments not yet reduced to writing.
Sample Due Diligence Check List
A due diligence checklist provides structure to the sale process for both the buyer and seller.
Below is a basic due diligence check list to give an idea of what information and documents is required to help highlight the need to start organising and preparing for it now.
To receive CMCs full detailed due diligence check list, email olivia.neale@cmc-partners.co.uk
Corporate
- Date and place of incorporation of the Company
- Registered office of the Company
- Auditors of the Company
- Contact details of all directors
- Copies of all documents and contracts over the last 3 years (or which remain in force) relating to corporate reorganisations, joint ventures, consortiums, purchases and sales of shares, assets or business or any other significant corporate event
- A list of all agencies, branches, places of business, trading addresses or any permanent establishments of the Company, including a short description of the business carried on and numbers of personnel involved.
Accounts
- Copies of the consolidated accounts of the Company for the last 3 financial periods.
- Copies of financial statements of the Company (including management accounts) since the date of the last audited accounts.
- Details of any dividends or other distributions declared, made or paid since the date of the last audited accounts or proposed to be declared, made or paid prior to completion of the proposed sale of the Company.
- Review of auditors files
Assets
- Details of any major current, proposed or projected capital expenditure commitments of the Company and estimate of future funding requirements.
- Details of all assets used by the Company subject to finance leasing, rental, hire purchase, conditional sale or similar arrangements and details of those arrangements
Trading
- Name(s) under which the Company trades.
- Copies of any corporate brochures, trade pamphlets and other marketing or promotional literature produced by the Company.
- Sales/distributions – outline how the Company’s products get to market
- List of major customers/suppliers/competitors
- Stock items, quantities and value
- Details of credit arrangements/debtors
Contracts and Commitments
- Details of any joint venture, consortium, agency, distribution, franchise, profit sharing agreement or other similar arrangements to which the Company is party.
- Copies of long term contracts
- Details or copies of all hire purchase, finance, leasing, credit sale and lease agreements and commitments to which the Company is party.
Employees
- Details of employees including contracts, wage increases, bonuses, share options
- Full details of pension scheme – employer and employee contributions
- Redundancy details if relevant
- Details of any disciplinary sanctions or dismissals
Property
- Details of property owned, leased or occupied by the company
- Copied of title deeds
- Details of planning permission, extensions
- Information of any contracts for sale, purchase or mortgages
Insurance
- Details and copies of company’s insurance policies
- Details of any recent claims experience
Intellectual Property and IT
- Details of all company’s registered intellectual property rights such as trademarks, registered designs, copyrights, databases, domain names.
- Information and documents on all logos, brand, trade names, ‘know- how’ trade secrets, used in the last 5 years
- Details of licences, expiry dates
- Overview of IT systems including software licences, agreements
Taxation
- Details of dates of last visit, audit and copy of correspondence relating to any audits performed or visit from the tax authorities regarding tax, PAYE, NIC in the last 6 years.
- Copies of all tax correspondence, agreements, returns, claims, disputes and payments
CMC would welcome the opportunity to assist you prepare for the above with an initial discussion at no charge. CMC can help make the process less daunting for you. Call our senior partner Derek Allen on 01491 829181 or email Derek.allen@cmc-partners.co.uk