This article was originally created for Hayes Knight (now Nexia Auckland).
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So what is due diligence and what’s involved?
Essentially due diligence is about doing your homework – opening the hood and having a thorough look at all aspects of a business. Due diligence assesses key risks and confirms your understanding of a target business is correct. Investigating and evaluating a business is a critical process in any business purchase. It should be a non-negotiable item on your purchase checklist.
A due diligence process typically involves three parts:
As accountants we are involved in the financial as well as commercial aspects of the due diligence assignment. Factoring in your investment for due diligence is essential – you need to consider the cost to you in both time and money if you get the purchase wrong.
The scope of the work undertaken will depend on various factors, including size of the transaction, complexity, overall investment, the purchasers experience in the industry and whether you need external expertise. The scope of the assignment and what work is being undertaken by which advisor is important to understand. Make sure thorough checklists are used to ensure all critical areas are addressed. We are often asked by clients to produce anything from a one pager covering top risk areas, to extensive detailed reports with financial analysis and financial forecasts, depending on their requirements.
Some important aspects to consider:
A thorough due diligence process, undertaken by experienced advisors, gives you the information you need to make an informed new business purchase decision. While undertaking a due diligence process will not guarantee a successful business transaction every time, it does remove the emotion from the equation, which can only improve your odds.
If you are looking at or even considering a new business purchase and want to find out how Hayes Knight can assist you with the due diligence process, contact your Hayes Knight adviser.