The Art of Due Diligence
Due diligence, or DD as it is often referred, is an integral part of the practice sale or transaction process. For whatever reason, vendors tend to get a little tetchy around due diligence time, concerned about what the purchaser will want to review and what information they need to make available as part of the process.

Nevertheless, it needs to be recognised, few if any purchasers will proceed with a transaction without completing DD. In all the time I have been selling practices, I have only seen a purchaser proceed with a transaction without completing DD on two occasions. One transaction has continued to go well three or so years after settlement; the other has been an absolute disaster with legal action currently under way.

It is important to appreciate the purpose of the act of due diligence. I speak with many vendors who have attempted to sell their practice and have recounted how a prospective purchaser has expressed an interested in buying their practice. Extensive DD has then been conducted, for them to then advise the vendor that they are not interested in proceeding or offered some terrible terms that would never be accepted so the deal has gone nowhere.

The outcome of this event has resulted in staff being stirred up causing uncertainty; the prospective purchaser now has confidential details about your clients and their affairs, and they have also reviewed commercially sensitive information about your practice, when really they were simply on a fishing expedition to see if they could get a bargain. They really didn’t have a genuine interest in negotiating a fair and reasonable transaction for both sides. Consequently, the vendor ends up disillusioned and frustrated by the experience as well as potentially having placed the practice and its clients at risk.

So, the question is, how do you avoid such experiences? Following are some suggestions:

1. Provide accurate, clear, detailed, relevant, up-to-date financial and non-financial information in the first instance as part of the IM.

2. Have detailed and focused discussions with any prospective purchaser around the information in the IM and answer any other queries they may have regarding the practice, its clients and operation. Also, engage in an in depth discussion with the purchaser about their practice.

3. Once an offer is exchanged, proceed to contract and then due diligence so that the purchaser has made a commitment and paid a deposit. This demonstrates their intentions, even if the contract contains an out clause for the purchaser should something arise within the DD process that significantly differs to what has previously be advised. Ideally, we like all information to remain in the vendor’s office during DD.

From our perspective, the purchaser has every right to review and examine any data or information pertinent to the business and its operation, although this does not extend to personal information about its owners unless this directly relates to the business. It’s important that this takes place to avoid any repercussions later down the track.

In my book, due diligence should be more about confirming that the information a purchaser has been told about the practice is correct and accurate rather than deciding whether the practice is a suitable acquisition for the purchaser; that’s when it becomes a fishing expedition. Between the initial IM and ongoing discussions, it should be possible for the vendor to provide sufficient information, without DD taking place, for the purchaser to ascertain whether they wish to buy the practice. Then it is simply a matter of confirming this information against practice data and records as part of DD.

Each purchaser will have their own information that they wish to review, however a list of some of the common data reviewed during this process is available at our new broking website –

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