What is financial due diligence and why is it important?

Melanie Richardson

23/01/2018

In the accounting sector, financial due diligence is a key issue that cannot be overlooked. For many outside of accountancy, even within the business sector, it is sometimes not clear what this is. Fully understanding what is involved and why it is so vital is essential if you are buying a business.

 

What is financial due diligence?

In simple terms, financial due diligence is performing a thorough investigation into the accounts of the business you will be buying. This research will enable you to clarify the health of the business and its worth before you purchase it. The purpose of this is to ensure you are paying a fair amount. Failing to perform financial due diligence checks can lead to a nasty surprise after purchase if the reality of the business turns out to be different than what was promised.

What areas does the financial due diligence procedure cover? 

When performing these checks, you will be looking at all of the accounts of the business that you will be buying to get the full picture of its worth. This will naturally include looking into the company's finances to get the confirmed turnover and profit figures in recent years, for example. Contained within this financial due diligence is a whole host of additional areas to investigate such as historical financial projections and potential tax risks.

Why is doing this so vital?

Performing financial due diligence checks is such an important issue when buying a business as it will make sure you pay a sensible price for it and help you make a fully informed choice on whether to buy it or not. Making this kind of purchase is a large commitment so you need to be sure before finalising any transaction. It is not only money that you could lose but any nasty legal surprises that are ongoing could be passed to you as the new owner!

 

If you are based in the Sussex area and need advice on due diligence, then give our Managing Partner, Melanie Richardson a call today. Our experienced team of chartered accountants can help you investigate the finances of any potential purchases to the highest standards.

 

Get in touch today

 

 

East Sussex Accountants

Melanie Richardson - Managing Partner

Tel: 01825 763366

Email: melanier@swindellsaccounting.co.uk

 

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