Once you have accepted on offer for your business which usually takes the form of a signed Heads of Terms document produced by the buyer’s solicitors, the next step is to engage (if you haven’t already) a good commercial lawyer experienced in business sales. (note this not your family solicitor)
Typically, this process takes 12-16 weeks, but can be quicker or in complicated transactions occasionally it takes longer.
You will be asked a significant number of questions and to supply answers and data which can be held in a secure data room approved by your lawyer.
The preparation you should consider is listed below for SME sellers in the UK preparing for due diligence This is structured around what buyers and their advisers will scrutinise most:
1. Financial Readiness
• Clean, accurate accounts (ideally 3+ years)
• Management accounts up to date (monthly/quarterly)
• Clear revenue breakdown (by product, customer, geography)
• Documented EBITDA and adjustments
• Cash flow visibility and working capital trends
• Consistency between filings (e.g. HM Revenue & Customs and Companies House)
2. Legal & Corporate Structure
• Group structure chart (subsidiaries, holdings)
• Articles of association and shareholder agreements
• Share ownership
• Board minutes and key resolutions
• Any past or ongoing disputes/litigation
3. Tax Compliance
• Corporation tax filings complete and up to date
• VAT compliance (returns, registrations, cross-border issues)
• PAYE and National Insurance properly handled
• Any ongoing or past tax investigations
• Clarity on tax reliefs (e.g. R&D claims)
4. Commercial & Revenue
• Top customers
• Signed contracts and terms of business
• Recurring vs one-off revenue split
• Sales forecasts
• Customer data
5. Key Contracts & Obligations
• Supplier and distributor agreements
• Lease agreements (property, equipment, vehicles)
• Loan agreements. Change-of-control clauses (critical for a sale)
• Insurance policies
6. People & HR
• Employee list (roles, salaries, tenure)
• Employment contracts
• Key management details
• Bonus, commission, and incentive schemes
• Any disputes, grievances, or tribunal risks
7. Intellectual Property (IP)
• Ownership of IP by the company
• Trademarks, patents, and registrations documented
• Software/code ownership (especially if contractors used)
• Any infringement risks or disputes
8. Technology & Operations (if relevant)
• Overview of systems and infrastructure
• Cybersecurity policies and past incidents
• Data protection compliance (GDPR)
• Business continuity and disaster recovery plans
9. Regulatory & Compliance
• Industry-specific licenses or approvals
• Health & safety compliance
• Environmental considerations (if applicable)
• Data privacy compliance (UK GDPR / ICO expectations)
10. Red Flags to be Prepared to Answer
• Inconsistent financials or unexplained adjustments
• Missing contracts or undocumented agreements
• Founder-dependent relationships
• Tax exposure or aggressive accounting
• Weak internal controls
11. Practical Preparation Tips
• Build a virtual data room early (well-structured folders) This may well transfer to the lawyers after Heads of Terms are signed
• Ensure documents are consistent, labelled, and current
• Prepare a Q&A log for likely buyer questions
• Align your accountant, lawyer, and any other advisers including your Business Broker