Date posted: 4th Apr 2024
By Joe Vera Sanso, Grants and Transaction Advisory Services Senior Executive
In my day-to-day role, I work on a lot of Financial Due Diligence projects. I often find there is some confusion about what a project of this nature actually entails, and why it is crucial for you and your business.
What is Due Diligence?
In its simplest terms, Financial Due Diligence is a background check carried out prior to undertaking a large transaction. The check considers a range of financial aspects and history associated with the relevant business, a little bit like a financial MOT.
Financial Due Diligence takes place before a contract is signed, typically during the planning stage of a large project such as an acquisition, management buyout, investment or grant application. The goal of these investigations is to verify the accuracy of a business’s financial information and taxation history and to fully understand the potential risks and benefits. The process varies depending on the nature of the deal, but it typically involves reviewing records, conducting interviews, and visiting company facilities. The structure of the investigation can be bespoke, focusing on any priority areas the transactor wants to have a particularly detailed understanding of. The findings are then presented in a comprehensive report which may be used by an acquiring party or a funder.
Financial Due Diligence is an important part of the entire transaction process. It looks at the financial health and viability of a business in minute detail, with everything from credit history to historic income being verified. This process helps to identify any financial risks, such as outstanding debts, pending lawsuits, or other liabilities that could affect the profitability or value of the business. Financial Due Diligence also includes an assessment of the company’s financial projections to determine if they are realistic and achievable.
Why do you need Due Diligence?
Financial Due Diligence ultimately provides peace of mind and evidence to put behind a typically important decision. For example, when looking to invest millions of pounds, you must be certain of all the potential implications and have all the evidence and information you need to make an informed decision. It provides a clear picture of the company’s financial situation, enabling the buyer or investor to negotiate a fair price and to plan for future growth and profitability, as well as identifying key risks and potential mitigations.
How can we help?
Our Grants and Transactional Advisory Services team can offer a full suite of Financial Due Diligence services, no matter the scale of the project. Our team has substantial experience in providing checks of this nature. We have worked on Due Diligence assignments supporting transactions ranging from £50k to tens of millions of pounds. Each job is unique, and we will be in continuous communication with you and your business throughout the process. We can also provide Due Diligence services to banks, fund managers and regional and national government grant schemes.
To find out more about how we could help you with a Due Diligence project, contact our expert team by clicking here.
