Every business transaction carries risk. Financial due diligence can reveal hidden liabilities, highlight potential pitfalls, and ultimately determine whether a deal succeeds or fails. Whether you’re acquiring a business, entering a joint venture, or investing, understanding what you’re buying is essential.
What due diligence is and what it isn’t
Financial due diligence involves reviewing key information that affects the success of a deal, both financial and non-financial. It doesn’t aim to prove that every figure is “right” (which would take significant time and cost), but rather to identify the areas of greatest risk and where further investigation is needed.
There’s no single approach that fits every transaction. The scope of work is agreed on a case-by-case basis, depending on the nature of the business and the specific objectives of the buyer or investor.
Why it matters
Experience shows that due diligence can have a major impact on the outcome of a deal. In around 40% of cases, findings lead to a restructure of the transaction. Another 40% result in the deal being withdrawn altogether, leaving just 20% where terms remain unchanged.
Due diligence can uncover hidden liabilities, unrealistic forecasts, overvalued assets, or potential HMRC or legal issues. It also highlights where warranties or indemnities are needed, helping solicitors draft robust legal documentation.
Beyond risk management, the insights gained often prove invaluable for post-completion integration, saving time and ensuring a smoother transition.
Key focus areas in today’s market
Certain considerations are becoming increasingly important in current transactions, including:
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ESG reporting (Environmental, Social and Governance): Depending on your sector, this may have growing importance for investors and regulators.
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Cash flow resilience: Can the business withstand supply chain disruptions? Does it have sufficient working capital and effective management controls?
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Disaster recovery planning: How well prepared is the business for weather extremes, cyber threats, or reliance on key suppliers?
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Succession planning: Is there a strong management team in place for the future? Are recruitment and training strategies aligned with long-term goals?
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Tax and pension liabilities: Could potential legislative changes create future obligations?
While some of these areas require specialist expertise, an experienced due diligence team acts as your first line of support, helping assess key risks and directing you to the right professionals when needed.
Expert support for every stage
Financial due diligence is a critical part of any transaction. When carried out by specialists with experience across multiple sectors, it provides confidence that you’re making the right decision.
Our dedicated team has completed numerous due diligence investigations, supporting clients through acquisitions, investments, and strategic partnerships.
For more information, or to discuss how we can support your next transaction, contact Cian Iddison.
