Due diligence is the extensive appraisal of a business or
franchise undertaken by a prospective buyer. A due diligence audit
will reveal the following information:
Current assets and liabilities
Current client relationships and projects
Current leasing arrangements
Current and prospective litigation matters
Current employee arrangements and contracts
Current intangible assets the business may possess (such as
goodwill and intellectual property etc).
Given the level of insight due diligence provides, it's
concerning that only 19% of Australian business owners are
comfortable with the process. It is possible that due diligence is
seen as an expense to the business, hence accounting for why so
many Australian small business owners are hesitant to commence the
process. However, small business owners should instead view the
process as an investment, rather than a cost as it provides
critical knowledge required to make a calculated acquisition.
Failing to audit a business deprives prospective buyers of the
opportunity to consider if their purchase is good value for money,
if they are equipped to combat inherent challenges faced by the
business and if the business model meets their expectations.
Three things to remember about due
You're entitled to request it – as previously stated,
due diligence allows you as a buyer to make an educated
Help is available – You aren't expected to understand
every piece of information due diligence provides, nor are you
supposed to forecast the potential ramifications stemming from this
knowledge. Professional advice is available to help you make sense
of the documentation
It's an investment not a cost – Whilst due diligence
may require your time, the advice of professionals and financial
costs, the overall benefits of the process far outweigh the short
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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White collar fraud otherwise known as occupational fraud and abuse can affect any business from an SME through to a large multi-national company.
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