When considering the sale of a business, one of the most common questions we hear at Redwoods Dowling Kerr is: what does due diligence actually involve? It is a vital stage of any transaction and, when approached with preparation and foresight, can be the difference between a smooth, timely sale and a protracted, difficult process.
At its core, due diligence is a buyer’s opportunity to examine a business in detail. It allows them to identify risks, verify information, and build confidence in their decision to proceed. For sellers, understanding what buyers are looking for – and preparing in advance – ensures the process is less daunting and more efficient.
Whether you are selling a care home, a medical practice or a childcare setting, the principles remain broadly the same. Buyers want assurance that the business has stable (preferably profitable) finances, is compliant, and transferable. The stronger your preparation, the greater the trust you inspire in potential purchasers.
The duration of due diligence can vary considerably. But the key is to anticipate what buyers will request and to make documentation accessible from the outset. This can prevent unnecessary delays and instil confidence in the buyer’s team.
Financial Due Diligence
For most buyers, the first port of call is the financial health of the business. Expect to provide up-to-date financial statements, management accounts, cash flow forecasts, and details of tax liabilities or debts. A transparent financial picture helps buyers assess both historic performance and future sustainability.
For regulated sectors such as healthcare or childcare, buyers may also pay close attention to occupancy rates, government funding streams, or staffing costs, given how central these are to profitability. No matter the sector, accuracy and accessibility of information are crucial.
Legal and Regulatory Matters
Buyers will want reassurance that ownership and rights are clear. This can include reviewing contracts, property leases, insurances, intellectual property, and supplier or customer agreements. They will also be keen to uncover any potential liabilities that could affect value.
In healthcare and childcare, compliance with the relevant regulators will be examined closely. Certificates, inspection reports, and up-to-date policies should be readily available.
Operational Considerations
Beyond the numbers and the paperwork, buyers need to know how the business actually works. They may wish to examine systems, IT infrastructure, supply chain management, and day-to-day processes. The goal is to understand how well the business functions and whether it can operate seamlessly under new ownership.
Staffing is a central part of this review. HR policies, employment contracts, training records, and payroll data all form part of the due diligence picture. In people-focused sectors such as healthcare or childcare, evidence of strong staffing structures and retention strategies can significantly enhance buyer confidence.
Customers, Clients, and Market Position
A business’s future potential is often defined by its customer base and position within the market. Buyers will look at the diversity and loyalty of your client base, market trends, and brand reputation. Marketing strategies, customer feedback, and growth plans all contribute to this assessment.
For example, in childcare settings, demand in local catchment areas may be scrutinised, while in private healthcare, patient referral patterns could be a key factor. In other industries, recurring contracts, order books, or brand recognition may take precedence.
Every Transaction is Different
No two businesses are identical, and neither are any two sales. The focus areas in due diligence will shift depending on your sector, your business structure, and the specific interests of the buyer. Preparing across all fronts ensures you are ready, whatever direction the buyer’s inquiries take.
At Redwoods Dowling Kerr, we work with sellers across the childcare, healthcare and medical sectors, guiding them through the due diligence process with clarity and support. With our expertise, you can prepare your business for scrutiny, avoid unnecessary obstacles, and move forward with confidence.
If you are considering a sale and want to understand the due diligence process in more detail, contact Redwoods Dowling Kerr for a confidential conversation.
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