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\u2019s solicitors, the next step is to engage (if you haven\u2019t 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.<\/p>\n\n\n\n
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
\u2022\tClean, accurate accounts (ideally 3+ years)
\u2022\tManagement accounts up to date (monthly\/quarterly)
\u2022\tClear revenue breakdown (by product, customer, geography)
\u2022\tDocumented EBITDA and adjustments
\u2022\tCash flow visibility and working capital trends
\u2022\tConsistency between filings (e.g. HM Revenue & Customs and Companies House)
2. Legal & Corporate Structure
\u2022\tGroup structure chart (subsidiaries, holdings)
\u2022\tArticles of association and shareholder agreements
\u2022\tShare ownership
\u2022\tBoard minutes and key resolutions
\u2022\tAny past or ongoing disputes\/litigation
3. Tax Compliance
\u2022\tCorporation tax filings complete and up to date
\u2022\tVAT compliance (returns, registrations, cross-border issues)
\u2022\tPAYE and National Insurance properly handled
\u2022\tAny ongoing or past tax investigations
\u2022\tClarity on tax reliefs (e.g. R&D claims)
4. Commercial & Revenue
\u2022\tTop customers
\u2022\tSigned contracts and terms of business
\u2022\tRecurring vs one-off revenue split
\u2022\tSales forecasts
\u2022\tCustomer data
5. Key Contracts & Obligations
\u2022\tSupplier and distributor agreements
\u2022\tLease agreements (property, equipment, vehicles)
\u2022\tLoan agreements. Change-of-control clauses (critical for a sale)
\u2022\tInsurance policies
6. People & HR
\u2022\tEmployee list (roles, salaries, tenure)
\u2022\tEmployment contracts
\u2022\tKey management details
\u2022\tBonus, commission, and incentive schemes
\u2022\tAny disputes, grievances, or tribunal risks
7. Intellectual Property (IP)
\u2022\tOwnership of IP by the company
\u2022\tTrademarks, patents, and registrations documented
\u2022\tSoftware\/code ownership (especially if contractors used)
\u2022\tAny infringement risks or disputes
8. Technology & Operations (if relevant)
\u2022\tOverview of systems and infrastructure
\u2022\tCybersecurity policies and past incidents
\u2022\tData protection compliance (GDPR)
\u2022\tBusiness continuity and disaster recovery plans
9. Regulatory & Compliance
\u2022\tIndustry-specific licenses or approvals
\u2022\tHealth & safety compliance
\u2022\tEnvironmental considerations (if applicable)
\u2022\tData privacy compliance (UK GDPR \/ ICO expectations)
10. Red Flags to be Prepared to Answer
\u2022\tInconsistent financials or unexplained adjustments
\u2022\tMissing contracts or undocumented agreements
\u2022\tFounder-dependent relationships
\u2022\tTax exposure or aggressive accounting
\u2022\tWeak internal controls
11. Practical Preparation Tips
\u2022\tBuild a virtual data room early (well-structured folders) This may well transfer to the lawyers after Heads of Terms are signed
\u2022\tEnsure documents are consistent, labelled, and current
\u2022\tPrepare a Q&A log for likely buyer questions
\u2022\tAlign your accountant, lawyer, and any other advisers including your Business Broker
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