How Can Financial Due Diligence Benefit Your Business Acquisition Process?

Editorial Team

Financial Due Diligence

Business acquisitions can be tricky to navigate with plenty of hurdles to jump through to eventually get a deal over the line. Business acquisitions are a frequent occurrence in the corporate world and last year, there were over 200 successful acquisitions in the UK alone.

Acquisitions can be done on all scales from small startups to huge multinational corporations and financial due diligence is always an important step no matter the size of the company acquiring a business.

To learn more about what financial due diligence is and how it will benefit you during an acquisition, this is the article for you. We’ll break down what it is in simple terms and why you should always consider it. This should mean you’re better prepared to make informed decisions during the business acquisition process, ultimately maximizing the likelihood of a successful transaction. Read on to find out more.

What is financial due diligence?

This is essentially a full-scale investigation, audit and review of the financial standing that the business you’re acquiring has claimed to have. This will give you the entire picture of what the finances really look like, which will help you decide whether or not this is a valuable venture for your business. Some of the items you can expect to be involved in financial due diligence include:

  • The company’s numbers
  • Their numbers over time
  • How they compare against competitors
  • Product reviews
  • Employees

As you can see, financial due diligence is a very valuable step but can be tricky to do without professional expertise. That’s why it’s recommended to hire professionals that you can trust to complete the due diligence correctly.

What are the benefits of financial due diligence?

  1. Identify risks –due diligence can highlight anything that could make the purchase of this business a bad idea.
  2. Could help you negotiate a better deal – if you discover something that the business you’re buying failed to disclose then you could be able to make the acquisition at a much better rate.
  3. Get third-party advice – if you hire an external business to complete the checks then they should analyse everything they find and be able to offer you impartial advice on whether this is a worthwhile investment.
  4. Ensure the business is the right fit for you – due diligence can highlight a bit more about what the business is like and its culture. This means you’ll have a full view of what you’re buying and can decide if that’s what you want.
  5. Save time and resources down the line – should the acquisition go through, then most of the information that you pulled up in the due diligence check will likely be needed again while you run the business.

This proves why financial due diligence is so important when making a business deal of this size. Consider doing one to increase your chances of a successful takeover and don’t end up like the 70-90% of acquisitions that fail.