Due diligence when buying a business

Due diligence is the stage where you check that the business is what the seller says it is. It is not about distrust; it is the normal, expected process of verifying the numbers and the story before you commit your money. A good seller will be organised and open, because they want the deal to hold together as much as you do.

This guide sets out what to examine across the financial, commercial, legal, and operational sides of a business, when diligence happens, and the warning signs worth taking seriously. Treat it as a checklist to work through with your accountant and solicitor, not a substitute for their advice.

What due diligence is, and when it happens

Diligence usually starts after you and the seller have agreed heads of terms, often during an exclusivity period when the seller agrees not to negotiate with other buyers. It typically runs 4 to 12 weeks. The aim is to confirm what you have been told, surface anything you have not, and give you the evidence either to proceed with confidence or to renegotiate.

Financial diligence

This is the core. Work through:

• Three years of statutory accounts plus recent monthly management figures
• Bank statements and VAT returns to confirm the revenue is real
• The addbacks behind any "adjusted" profit figure, line by line
• Debtors and creditors, and how quickly customers actually pay
• Any debt, finance agreements, or director loans
• The tax position, including any open matters with HMRC

Commercial diligence

Understand where the money comes from and whether it will keep coming:

• Customer concentration: how much revenue sits with the top few customers
• Whether revenue is recurring, contracted, or won fresh each time
• The sales pipeline and recent trend
• The competitive position and any market changes on the horizon

Legal diligence

Your solicitor leads this, but know what is being checked:

• The lease: remaining term, rent reviews, break clauses, and whether the landlord must consent to the change of ownership
• Key customer and supplier contracts, and whether they survive a change of control
• Employment contracts, staff costs, and TUPE obligations
• Intellectual property: trademarks, domains, software, brand assets
• Any litigation, disputes, claims, or regulatory issues
• Licences and certifications the business depends on

Operational and people diligence

The things that are not on a balance sheet but make or break the handover:

• How dependent the business is on the current owner, and what leaves with them
• Which staff are key, and whether they intend to stay
• Whether processes are documented or live only in people's heads
• The state and age of equipment, premises, and systems

Red flags worth pausing on

Reluctance to share information, numbers that do not reconcile across sources, a single customer being most of the revenue, the owner being central to every relationship, undocumented or informal staff arrangements, and any pressure to complete quickly without proper checks. None of these is automatically fatal, but each one needs a satisfactory answer before you proceed.