Due diligence is where you find out whether the business you have agreed to buy is the business you think it is. As the British Business Bank puts it, once you buy a business you become responsible for its problems, including debt and legal claims.
This page is a practical checklist for buyers. It sets out the workstreams, the evidence to ask for, how to judge what you find and who should do what. You can also download the checklist as a PDF to work from.
This is general information, not legal, tax or financial advice. Take specialist advice on your own deal.
What is buyer due diligence for, and what can a checklist not do?
Due diligence tests the assumptions behind your offer: that the profit is real, that the debt is what you were told, that the customers and people will stay, and that nothing in the contracts, tax or regulation will cost you later. Its job is to tell you whether to proceed and, if so, on what terms.
A checklist helps you organise that work and avoid gaps or duplication. It cannot verify a business by itself. A tick against "management accounts received" says nothing about whether those accounts are right. That judgement comes from qualified people reading the evidence, and from you deciding what it means.
Order matters too. Many buyers spend heavily on lawyers and accountants before checking the few things that would stop the deal anyway. Check those first, ideally before you agree the price and main terms in writing (heads of terms), and you spend least on the businesses you walk away from.
What are the workstreams?
| Workstream | What it tests | Usually led by |
|---|---|---|
| Financial | Whether the profit is real and repeatable; debt, cash and working capital | Your accountant |
| Commercial | Customers, pipeline, pricing, competition and why the business wins | You, sometimes with a commercial adviser |
| Legal | Who owns the shares, key contracts, disputes, intellectual property | Your solicitor |
| Tax | The company's tax history and the tax cost of the deal | Your accountant or tax adviser |
| Operational | How the work actually gets done, suppliers, sites, equipment | You and your operations lead |
| People | Key staff, employment terms, pensions, culture | Your solicitor (contracts), you (people) |
| Technology and data | Systems, software licences, cyber security, data protection | IT specialist; solicitor for data law |
| Regulatory | Licences, accreditations and any approval needed to buy | Solicitor or sector specialist |
Not every deal needs every workstream at full depth. A software business needs far more technology work than a distributor. A regulated firm needs regulatory work early, because it can set the timetable.
What should you check first?
These are the checks most likely to stop or reshape a deal. Most can be started from public records or a short request list.
- Quality of earnings. Rebuild EBITDA (operating profit) from the filed and management accounts. Test every "one-off" adjustment. If a large part of the profit you are paying for comes from adjustments, slow down. Our guide to valuing a business before buying shows how.
- Debt and debt-like items. Loans, asset finance, loans owed to the owner, unpaid tax, aged supplier bills. These come off the price.
- Who owns the shares. Register of members, confirmation statement, any options or shareholder agreements.
- Companies House record. Are accounts and confirmation statements filed on time? Charges should be registered within 21 days of being created, and the register is public. Every outstanding charge needs to be explained and dealt with at completion.
- Customer concentration. What share of revenue comes from the largest customer and the top five?
- Regulatory approval. If the target is authorised by the Financial Conduct Authority, you must notify the FCA and get approval before acquiring control. Not doing so is a criminal offence. The FCA has up to 60 working days from a complete notification to assess it.
What evidence should you ask for?
Ask specific questions and ask for documents, not reassurance. The table below is a starting point, not a complete request list; your specialists will add to it.
| Area | Question | Evidence to request |
|---|---|---|
| Earnings | Does management profit reconcile to the filed accounts? | Three years of filed and monthly management accounts, reconciliation |
| Earnings | Which adjustments are genuine one-offs? | Invoices and a schedule of every adjustment |
| Working capital | What is a normal level across the year? | Monthly balance sheets, aged debtors and creditors |
| Customers | Who are the largest customers and how secure are they? | Sales by customer by month, top contracts, renewal dates |
| Contracts | Can anyone end a contract if ownership changes? | Key customer, supplier and lease agreements |
| Tax | Are there arrears, open enquiries or payment plans? | Corporation tax, VAT and PAYE returns and HMRC correspondence |
| People | Who is critical and will they stay? | Organisation chart, contracts, pay, notice periods |
| Pensions | Is there any defined benefit (final salary) scheme? | Scheme details, latest valuation, auto-enrolment records |
| Property | Can the business stay where it is? | Title or leases, rent reviews, break dates, landlord consent terms |
| Technology | Who owns the systems and can licences transfer? | Software and licence list, IT contracts, security incidents |
| Data | Is customer data held lawfully? | Privacy notice, ICO registration, record of any data breaches |
| Disputes | Is anything threatened or ongoing? | Litigation schedule, insurance claims, complaints log |
Keep a single tracker with each request, who asked, the date received and a status. Record uncertainty as well as answers. "Received, not yet reviewed", "partial answer" and "seller says not available" are useful statuses, because they stop gaps being mistaken for clean results.
Some deal tax points to be aware of: buying shares with a stock transfer form usually means stamp duty of 0.5% where the price is over £1,000, rounded up to the nearest £5. In an asset purchase, VAT may apply unless the sale qualifies as a transfer of a going concern, Stamp Duty Land Tax can apply to property, and TUPE usually moves the employees across on their existing terms. Your tax adviser and solicitor should confirm how these apply to your deal.
How do you judge what you find?
Not every finding means the same thing. Sort each one into a category so you can decide what to do about it.
| Finding | Example | Typical response |
|---|---|---|
| Missing document | Supplier contract not yet provided | Chase it; set a deadline; note it in the tracker |
| Unresolved issue | An open HMRC enquiry with no outcome yet | Quantify the possible cost; seek a specific indemnity or a retention from the price |
| Reason to change the offer | Profit lower than presented once adjustments are tested | Revisit the price or structure, for example paying part later if the business delivers |
| Possible reason to stop | A licence that will not survive the change of ownership | Pause and decide with your advisers whether the deal still works |
One red flag is not always a reason to walk away. It is a reason to adjust the price, the structure or the protections in the sale agreement. Several together, or a seller who is slow to answer and keeps changing the numbers, usually are.
Who does what?
| Who | Responsible for |
|---|---|
| You (and your board) | Setting priorities, deciding what findings mean, approving the price and whether to proceed |
| Accountant or tax adviser | Financial and tax diligence, working capital, the completion accounts mechanism |
| Solicitor | Legal diligence, the sale agreement, warranties and indemnities, employment and property |
| Other specialists | Pensions, environmental, technology or sector regulation where relevant |
| Acquisitiv | Coordinating the process: keeping the request list and tracker, chasing the seller, making sure specialists are not duplicating work, and bringing findings back to you in plain terms |
Acquisitiv does not provide legal, tax or financial due diligence. We coordinate it, alongside your specialists, as part of an Acquisitiv Expansion Partnership engagement.
How does this connect to the price?
Due diligence tests the numbers your offer was based on. If the profit or working capital turns out lower, or a liability appears, the price or the structure should move. Agree in your heads of terms how working capital and debt will be treated, so findings feed straight into the final price rather than becoming a fresh negotiation.
Not sure where to start?
If you have a business in view and want to work out which checks matter most for your deal, book an Expansion Briefing. It is a free 30-minute call with us, followed by a short written summary and a recommended next step.
Questions buyers ask
How long does due diligence take when buying a UK business?
It depends on the size of the business, the quality of the seller's records and whether a regulator must approve the change of ownership. Starting the checks that could stop the deal before you agree the price and main terms in writing usually shortens the later stages.
Do I need an accountant and a solicitor for due diligence?
For anything beyond a very small purchase, yes. The British Business Bank suggests external support, typically an accountant for financial health and a solicitor for legal issues. You can do first-pass checks on Companies House and the commercial review yourself.
What is different about due diligence on a share purchase and an asset purchase?
In a share purchase you buy the company with its history, including tax and legal liabilities, so checks go deeper and you rely on warranties and indemnities in the sale agreement. In an asset purchase you choose what to take on, but TUPE usually moves the employees across on their existing terms and property taxes can apply.
Does a completed checklist mean the business is safe to buy?
No. A checklist shows what has been asked and answered. Whether the answers are good enough is a judgement for you, informed by your accountants, solicitors and other specialists.
Michael Ferguson is the founder of Acquisitiv and a Partner at CDI Global in the United Kingdom. A chartered certified accountant (ACCA), he was head of M&A at a global, family-owned spirits group and finance director at a FTSE-listed company. He acts only for buyers. More about Michael →
- Due diligence checklist: buying a business, British Business Bank
- Register a charge (mortgage) for a limited company, GOV.UK
- Tax when you buy shares: use a stock transfer form, GOV.UK
- Employee rights when a business changes owner (TUPE), GOV.UK
- Transfer a business as a going concern (VAT Notice 700/9), GOV.UK
- Change in control, Financial Conduct Authority