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