If you are considering selling your accountancy practice, one of the most important stages of the transaction will be the buyer’s legal due diligence exercise. This is the process by which a buyer investigates the business to understand what it is acquiring and to identify any legal risks or liabilities.
Preparing for legal due diligence in advance can help avoid delays, reduce transaction costs and ensure the sale process runs as smoothly as possible.
Why Prepare for Legal Due Diligence?
Many sellers underestimate the importance of preparation. Legal due diligence is not simply a buyer’s exercise. It is also an opportunity for sellers to identify and address issues before they become obstacles during negotiations.
- Speed up the transaction process.
- Increase buyer confidence in the business.
- Minimise the risk of price reductions.
- Reduce the scope of warranty negotiations.
- Reduce management distraction from running the business during the sale process.
- Help identify missing documents or compliance issues before they become deal issues.
In short, a well-prepared seller is often in a stronger position to maintain momentum and maximise value.
What Will Buyers Typically Review?
Corporate Matters
Buyers will want to confirm that the company has been properly managed and that the shares being sold are owned by the seller. Key documents include:
- Statutory registers.
- Articles of association.
- Share certificates.
- Board and shareholder resolutions.
Client Relationships
The value of an accountancy practice often lies in the strength and stability of its client base. Buyers will typically review:
- Engagement letters and terms of business.
- Key client contracts.
- Any significant client disputes or complaints.
- Contractual provisions that may be triggered by a change of ownership.
Regulatory Compliance
Given the regulated nature of the profession, buyers will pay particular attention to:
- Compliance with professional body requirements (such as ICAEW or ACCA).
- Anti-money laundering (AML) policies and procedures.
- Professional indemnity insurance arrangements.
- Regulatory investigations, findings or disciplinary matters.
Employees and Consultants
The team is often a key driver of value in a professional services business. Buyers may request:
- Employment contracts.
- Consultant agreements.
- Details of bonuses and benefits.
- Information relating to employment disputes, grievances or claims.
Commercial Contracts and Property
Buyers will also review the practice’s key operating arrangements, including:
- Software and IT licences.
- Supplier agreements.
- Property leases.
- Borrowings, guarantees and security interests.
Claims and Risk Areas
Attention will be given to:
- Professional negligence claims.
- Ongoing or threatened litigation.
- Tax disputes or investigations.
- Data protection breaches and cybersecurity incidents.
Seller’s Checklist
Before commencing the sale process, we would advise that the following are dealt with:
- Corporate records are up to date.
- All shareholder documentation is available.
- Engagement letters and key client contracts are organised.
- AML and regulatory compliance records are readily accessible.
- Employment and consultant agreements are signed and complete.
- Property, supplier and software contracts are available.
- Insurance policies are up to date.
- Any disputes, claims or compliance issues have been identified and documented.
- A secure due diligence data room has been prepared (but not made available to any potential buyers).
Final Thoughts
Preparing for legal due diligence before approaching potential buyers can save significant time, reduce transaction risk and help present your practice in the best possible light. Buyers are generally more comfortable with issues that have been identified, explained and properly documented than with surprises uncovered late in the process which may derail a transaction.
If you are considering selling your accountancy practice and would like advice on preparing for the legal due diligence process or navigating the sale of your business, please contact Faisal Bhatti, Senior Associate in the Corporate Team at Nockolds Solicitors, at fbhatti@nockolds.co.uk. I would be delighted to discuss how we can assist.