What is financial due diligence?

Financial due diligence is the act of reviewing all financial information and records to confirm facts and details. This mitigates any risk when making a business or investment decision, which is why it’s so crucial for both buyers and sellers. Like an audit, financial due diligence is conducted by an outside party to better understand a company’s financial position.

Financial due diligence involves examining financial numbers, comparing them over time and benchmarking against competitors. The reviewed information includes financial statements, balance sheets, assets and liabilities, cash flow, expenditures and future projections.

What are the benefits of performing financial due diligence?

With thousands of business deals done on a daily basis, it’s easy to face major losses by making one wrong decision. This is where financial due diligence makes all the difference:

• Negotiate a better deal – for both buyers and sellers, due diligence helps leverage a better deal. If sellers can prove that their financials are strong, then they can charge more. If buyers have found areas of weakness, they are in a better position.
• Peace of mind – financial due diligence provides all parties with reassurance that all information has been shared and an honest deal is taking place.
• Higher success rate – deals are much more likely to go through when financial due diligence has been taken. 
• Transparency – an informed decision can be made by both buyer and seller when there’s transparency. This provides confidence for both parties.
• Identify shortcomings – buyers can identify areas of concern that they would like addressed before proceeding. Due diligence can also help the seller as they can see which areas of the business are weak.
• Risk reduction – before making any significant business decision, it’s important to reduce the risk of any mistakes, for both the buyers and sellers. Financial due diligence identifies risks, making it easier to consider both the pros and cons.

How do you prepare for financial due diligence?

When having a team conduct financial due diligence, it’s important to have all of the information to hand, so that the process is seamless:

• Income statement (past five years) – to check for the volatility of earnings across periods, closely examine expenses, understand the quality of the earnings and one-off purchases.
• Balance sheets (past five years) – to evaluate the assets and debt-equity ratio.

• Cash flow statements (past five years) – to check how much cash is being generated and the quality of the cash flow.

What type of financial due diligence services do we offer?

We offer financial due diligence services for both buyers and sellers.

Our team has extensive experience helping business buyers and sellers and will make sure you get the best possible price.

Why choose Rayner Essex for due diligence services?

Selling or buying a business is a huge decision with plenty of variables to consider. At Rayner Essex, our expert team of financial professionals help you to make an informed decision when buying and get the best deal when selling. We take the time to build a strong relationship with you beforehand, so we can identify areas of concern for you when carrying out due diligence. You’ll receive a fixed senior point of contact throughout the process who’ll be able to advise on any questions or concerns you may have. We pride ourselves on our open communication and personable approach, by providing our attention and a high level of expertise. When buying or selling a business, having a team of experts by your side will ensure you make the right decision to get the best deal.

What type of businesses do we provide due diligence services for?

Rayner Essex work with a wide range of businesses of various sizes and sectors.