November 22, 2024
For small law & accountancy firms, due diligence can seem complicated and costly. But it doesn’t have to be. Often, there’s no need for an expensive data room, which some brokers sell to their clients as a perk. This is essentially a secure file online, accessible by all the parties. Instead, a shared Google drive or Dropbox folder works well and keeps things easy. Here’s a quick, simple look at how the due diligence process works and tips for keeping it efficient.
Is a Data Room Necessary?
In most cases, no. Data rooms can be expensive and are usually needed only for big deals with lots of documents. SME firms tend not to have that many documents to share, so a formal data room is overkill. A OneDrive, Google Drive or Dropbox folder can do the job just as well. It’s easy, affordable, and allows both parties to share and update files without emailing back and forth.
Start with Heads of Terms
Before jumping into due diligence, both parties usually create a heads of terms document. This document isn’t legally binding but outlines the basic terms and timeline of the deal. It helps everyone understand what to expect before diving into detailed work. So, if an offer has been made, get the other party to put together heads of terms, as they provide a good foundation to move forward. Our company provides draft heads of terms to both parties in each transaction, as well as providing legal advice & assistance for our Platinum Plus clients (and as a standalone service).
How the Due Diligence Process Usually Works
Due diligence is all about making sure the business is as expected, and there are no hidden surprises awaiting the buyer once they take over.
The process begins when the buyer makes an initial offer based on basic information about the business.
Once both sides agree to proceed, they draft heads of terms – a non-binding document that outlines key terms and often includes an exclusivity period of 45-90 days, during which the buyer has the sole right to pursue the deal.
During this exclusivity period, due diligence begins as the buyer requests documents and asks questions to verify business details.
To make document sharing easy, a Google Drive, or Dropbox folder can be set up, allowing both parties to post, review, and edit documents in real-time, reducing the need for constant emails.
After heads of terms are agreed upon, legal advisers may get involved to draft the Business or Share Purchase Agreement and may also conduct their own due diligence, using the same shared folder for easy access to all relevant documents.
Getting Documents Ready
It’s a good idea to organise basic documents ahead of time, using a checklist to cover what might be needed. However, avoid sharing everything right away until heads of terms have been agreed and signed. This keeps things simple and avoids wasting time if the deal doesn’t go through.
Balancing Transparency and Efficiency
Due diligence can be a balancing act. Sharing too much too soon can be inefficient, but holding back can slow things down. Aim to be open and helpful but efficient; and only share documents when asked. Some sellers completely overcomplicate the process by sending over details not requested, and some buyers ask for way too detailed unnecessary data and information.
Summary
Due diligence for small law & accountancy firms doesn’t need to be overwhelming. Often, a shared folder is a practical, low-cost alternative to a data room. By starting with heads of terms, preparing documents carefully, and sharing them only when requested, firms can keep things moving forward smoothly without extra hassle. This approach makes the due diligence process easier and more manageable for everyone involved.
Due Diligence Questions for preparing for the Sale of a Law & Accountancy Firm
We keep a non-exhaustive list of questions we think a potential seller of a law or accountancy firm should ask themselves when preparing for sale. It is very lengthy, but this is the sort of detail a buyer is going to ask for at the due diligence stage of the process. Copies are always available to our premium clients and we assist with the due diligence process for our Platinum Plus clients.
If you are thinking of selling your law or accountancy firm and would like advice or assistance please contact us.
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