Financial due diligence

When buying or investing in a business it’s crucial to have confidence in the financial, commercial and operational assumptions being made.

Financial due diligence is a process designed to provide a buyer/investor with the assurance to transact.

Our key areas of focus when undertaking financial due diligence are directly linked to typical valuation metrics and include exploration of:

• The historical and current earnings of the business - to assess what appears to be a maintainable level of profitability, and to what extent this accords with buyer/investor understanding.
• The net working capital dynamics of the business – to assess what appears to be a normal level of working capital, informing the setting of any net working capital targets in the Share Purchase Agreement.
• The most recent balance sheet positions (including that at the last statutory year-end) – to establish the net cash/debt in the business.

The benefits of financial due diligence

The benefit of carrying out due diligence is that we can provide you with an enhanced ‘sighting’ of the acquisition and place you, as the acquirer, in a more informed position than if you solely had to rely upon the contractual protections contained in the Share Purchase Agreement.

Your due diligence report

Once we’ve completed our due diligence we’ll present our findings to you in the form of a due diligence report. The recommendations contained within this report will clearly direct to the following key areas:

• Valuation impacting matters.
• Matters requiring consideration for enhanced and specific protection within the Share Purchase Agreement.
• Matters which you as the buyer should consider to improve the business and protect your investment moving forward - for example, in the areas of financial reporting, systems and controls, tax compliance and management.

How can we help?

For financial due diligence to be as effective as possible it should be conducted by specialists.  Our team here at Armstrong Watson is led by Stephen Green who has focussed the last 25 years of his career in this field supporting mid-market owner-managed businesses, providing high-quality and pragmatic advice to companies on a strategic growth journey and to financial investors and funders operating and equally excited by this space.