Due diligence: The anatomy of a typical engagement

By DTE Business Advisers

10 Oct 2022

Fatema Daud, our corporate finance executive gives a run-down of the different steps to a Financial Due Diligence.

When buying, merging with, or investing in a business, you must be mindful of identifying and addressing a range of considerations that can affect the outcome of that decision.

What is due diligence?

Due diligence refers to the appraisal of a business undertaken by a buyer before entering into an agreement or a financial transaction with another party.

It helps to understand how the business is conducted and how it can be integrated into an existing group of companies.

A tailored piece of due diligence will provide assurance on your existing understanding of the opportunity and challenge the commercial and financial assumptions.

Are there different types of due diligence?

Whilst the most common type of due diligence is financial, there are several others which a buyer or funder may also take into consideration, such as:

Commercial Information technology Intellectual property Legal Operational  Management

When conducting a Financial Due Diligence, you would typically examine five main aspects of the business. These include:

1. Earnings Performance

Analyse current and historical information to understand maintainable profit and the value drivers in the business.

In the case of a growing business, the last twelve months’ performance will typically be a better indicator rather than looking back to the last available statutory accounts.

This then forms the basis of assessing the forecast numbers and the underlying assumptions.

2. Cash Performance

Financial Due Diligence builds on the understanding of the value drivers through to cash conversion.

The analysis allows us to comment on levels and trends of working capital, intra-month cash swings and the viability of the debt-equity structure.

3. Assets and Liabilities

The statement of financial position shows what is being acquired within the financial statements. FDD reviews the assets and liabilities to identify items that might require further investigation to determine the quality of assets, unforeseen liabilities and accounting policies.

It will also consider whether any further investment is required in capital assets.

4. Off Balance Sheet Items

Financial Due Diligence processes will often investigate off balance sheet items such as contingent liabilities, hedging instruments, leases and capital commitments to assess how these factors will affect the business in the future.

5. Processes and Controls

The assessment of a business’ financial processes and controls determine whether these are efficient, appropriate and robust enough to suit the requirements under new ownership.

This is where we come in

At DTE, our Transaction Services team have extensive experience providing Financial Due Diligence to companies, banks, private equity houses, private equity backed corporates and other funders for a range of transaction sizes and types.

Due diligence should be a key element in any acquisition or investment process. We believe that working closely with clients to develop an appropriate scope of investigation that meets their requirements, is the most effective way to achieve due diligence objectives.

Contact our team for more information on 0161 819 1910 or [email protected].

Latest news

1

Construction begins on new Civil Service office building in Talbot Gateway Alan McBride Muse Will Town Defence Infrastructure Organisation Jennifer Chard Defence Business Services Cllr Lynn Williams Blackpool Council Garry Bowker Vinci

Construction begins on new Civil Service office building in Talbot Gateway

20 May 2025

2

Skiddle raises over £750,000 for charities Skiddle cheque presentation to Alder Hey Hospital

Skiddle raises over £750,000 for charities

20 May 2025

3

Former Victorian Hotel approved for residential conversion The site

Former Victorian Hotel approved for residential conversion

19 May 2025

4

REVOLUTION PARK: Work starts on Darwen’s new home of advanced manufacturing Oliver Webber, Tracy Clavell-Bate and Tim Webber from Barnfield Group with Cllr Phil Riley, second from right, Leader of Blackburn with Darwen Council

REVOLUTION PARK: Work starts on Darwen’s new home of advanced manufacturing

19 May 2025

5

Two Cuckoo Gins named winners in The Gin Guide Awards 2025 Mark Long

Two Cuckoo Gins named winners in The Gin Guide Awards 2025

19 May 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
LBV122 May/June Launch Event
121 Lancashire Business View Magazine Launch
Networking
21 May 2025

LBV122 May/June Launch Event

Lancaster and Morecambe College, Lancaster, LA1 2TY

08:30 - 10:30

Sub36 Networking
Networking
11 Jun 2025

Sub36 Networking

British Jewellery School, Scorton, PR3 1BA

15:00 - 17:00

Lancashire Net Zero Carbon Conference
Net Zero Carbon Social 1200pxtrident 2
Networking
18 Jun 2025

Lancashire Net Zero Carbon Conference

Crow Wood Hotel & Spa Resort, Burnley, BB12 0RT

08:30 - 13:00

Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
02 Apr 2025 - 08 Oct 2025

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 15:30

The Business Network Central & East Lancashire
LBV Hub Networking
22 May 2025 - 22 May 2025

The Business Network Central & East Lancashire

Mytton Fold, Langho, BB6 8AB

11:30 - 14:15

Preston Freelancer Meet-Up: May
Freelancer Meet-Up May.png.png
LBV Hub Networking
22 May 2025 - 22 May 2025

Preston Freelancer Meet-Up: May

society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Amber River True Bearing quarterly investment seminar
LBV Hub Seminars
22 May 2025 - 22 May 2025

Amber River True Bearing quarterly investment seminar

Cottons Hotel & Spa , Knutsford, WA16 0SU

16:00 - 18:00

Liverpool Business Expo 2025
https---cdn.evbuc.com-images-881365363-4862066883-1-original.20241023-085714.jpeg.jpg
LBV Hub Awards
23 May 2025 - 23 May 2025

Liverpool Business Expo 2025

Aintree Racecourse , Liverpool , L9 5AS

09:00 - 15:00

Advantage: AI – A Workshop for Business Leaders – May 29
Artboard 15.png.png
LBV Hub Seminars
29 May 2025 - 29 May 2025

Advantage: AI – A Workshop for Business Leaders – May 29

Door4 Office, Burnley Wharf, Manchester Road, Burnley, BB11 1JG

09:00 - 11:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV122 Online Graphic
Subscribe now

Weekly news bulletin