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Performing due diligence

When buying, or investing in, a business, it is tempting to get caught up in the excitement and adrenaline of doing the deal. Often referred to as "deal fever", this feeling of elation can lead to mistakes, especially if you haven’t done your homework.

Carrying out the background work on the company and learning as much as you can about it is called “due diligence”. It is an essential part of completing a successful transaction. Below is a due diligence check-list detailing the key areas you should scrutinize:

1. Financial

  • The most current three years of audited financial statements
  • Monthly management accounts for the current financial year
  • Projected financial statements for the next three years
  • The most current three-year Corporation Tax Returns
  • The most current VAT Returns
  • Copies of any current operating and capital budgets
  • Current business plan, if available
  • A list of all entities in which the company has any direct or indirect interest, investment or participation
  • A list of the company’s main customers and the nature of the business that is done with these customers
  • Detailed analysis of revenue, including the description of services provided and the mix between software provision and payroll outsourcing
  • Copies of all financing, security, etc. agreements
  • Copies of all agreements that restricted the transfer, sale or exchange of any assets
  • Detail of all debts - both long-term and current
  • Copies of the last three months' bank statements for the main trading account
  • Any other financial commitments

2. Assets/Liens

  • A list of all tangible and intangible assets with accumulated depreciation and amortisation
  • Copies of all agreements that restricted the transfer, sale or exchange of any assets
  • A list of any and all liens and encumbrances against the company and any and all of its assets, including any judgments against the company
  • Copies of licenses for PC software and usage

3. Employment-related matters

  • Current organisation chart, head count and corresponding salary levels
  • Copies of all benefit plans, including stock option plans, profit-sharing plans, pension plans and employee stock purchase plans
  • Copies of current payroll records and recent PAYE payments
  • Copies of all employment contracts and offers of employment, including any agreements regarding severance packages
  • A list of all former employees over the past two years, along with reasons as to why they left the company

4. Corporate issues

  • Copies of incorporation documents (certificate of incorporation, memorandum of understanding and articles of incorporation)
  • Minute-book, shareholders' register and other statutory records
  • Any plans, arrangements or commitments involving or affecting the share capital of the company
  • Any and all shareholder agreements
  • A list of all shareholders or any persons or entities who have an ownership interest in the target company
  • Copies of any director and officer liability insurance policies

5. Legal

  • Description of any and all past, present, threatened and/or possible litigation or claims involving the company or its services
  • A list of all licenses, permits or authorisations granted by a government authority
  • All documents related to any government investigation, especially PAYE, VAT or corporation tax
  • Details of any patents, copyrights and trademarks
  • Details of any leasehold commitments
  • All documents which could materially adversely affect the present or future value of the target company or products

6. General

  • What type of invoicing system is in place and how money gets collected
  • Details of any seasonality in the business

South Africa

Cape Town

Regent Square
Doncaster Road
Kenilworth 7708 +27 (0) 21 657 2120


25 Richefond Circle
Umhlanga 4320 +27 (0) 31 536 8843

United Kingdom


Castlewood House
77/91 New Oxford Street
WC1A 1DG +44 (0) 20 7759 7514


5-7 Selsdon Road
South Croydon
CR2 6PU +44 (0) 20 7759 7581



9 Yarra Street
South Yarra
VIC 3141 +613 (0) 8651 4500

Sable International is a trading name of 1st Contact Money Limited (company number 07070528), registered in England and Wales. We are authorised and regulated by the Financial Conduct Authority in the UK (FCA no. 517570), the Financial Services Conduct Authority in South Africa (1st Contact Money [PTY] Ltd - FSP no. 41900) and hold an Australian Financial Services License issued by ASIC to deal in foreign exchange (1st Contact Group - AFS License number 335 126).

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