Due diligence checklist for buying a business in the UK
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Due diligence is where you find out whether the business you've agreed to buy is the business you think it is. Most buyers do it in the wrong order. They spend on lawyers and accountants before they've checked the few things that would kill the deal anyway.
This checklist is prioritised. Work through it top to bottom and you'll spend least on the deals you walk away from. Acquirers Club members can download it as a working document.
What should I check first?
These are the deal-breakers. Check them before you sign heads of terms, or as soon after as the seller will allow. Most can be started from public records.
Financial - Quality of earnings. Rebuild EBITDA from the management accounts and the filed accounts. Test every "one-off" adjustment. If more than half the profit you're paying for comes from adjustments, slow down. - Debt and debt-like items. Bank loans, asset finance, director loans, deferred income, unpaid tax, aged creditors, deferred consideration from earlier deals. These come off the price.
Legal - Title to the shares. Check the seller actually owns what they're selling: the register of members, the confirmation statement and any share options or shareholder agreements. - Companies House filings. Are accounts and confirmation statements up to date? Late filing is often a sign of weak finance control. - Charges register. Lenders must register a charge at Companies House within 21 days of it being created, and the register is public. Every outstanding charge needs to be explained and released or repaid at completion.
Commercial - Customer concentration. What share of revenue comes from the top customer and the top five? A single customer at 20–25% or more is a real risk to price and structure.
Regulatory - Approvals needed to complete. If the target is FCA-authorised, you must notify the FCA and get its approval before you acquire control. Doing so without approval is a criminal offence. The FCA has up to 60 working days from a complete notification to assess it, so this sets your timetable.
What should I check before heads of terms are final?
These items move the price or the structure. Get them clear before you commit in writing to a number.
Financial - Working capital. Work out a normal level across the year, not at one point. Agree that the business will be handed over with that level, or the price adjusts. - Trend and forecast. Monthly revenue and margin for at least two to three years. Is the latest year the peak?
Tax - HMRC position. In a share purchase you inherit the company's tax history. Check corporation tax returns, any open enquiries and any time-to-pay arrangements. - VAT and PAYE. Look for late returns, penalties, and staff paid as contractors who should be on payroll. - Deal tax costs. Stamp duty on a share purchase is 0.5% of the price (rounded up to the nearest £5). In an asset purchase, Stamp Duty Land Tax can apply to property, and VAT may apply unless the sale qualifies as a transfer of a going concern (TOGC).
Commercial - Key contracts. Read the top customer and supplier contracts. Look for change-of-control clauses, which let the other side end or renegotiate the contract if the company changes hands. - Pipeline and churn. How much revenue is contracted or recurring? How many customers left last year, and why?
People - Key staff. Who really runs the business? Will they stay? Plan how you'll keep them (salary, equity, retention bonus) before you finalise the price. - Owner dependency. If the owner holds the customer relationships, price and structure need to reflect that, often with an earn-out or a handover period.
What should I check before completion?
These are the confirmatory checks. They rarely kill a deal but they feed into the sale agreement, warranties and indemnities.
Legal - Full review of material contracts, leases, intellectual property, insurance and any litigation, threatened or actual. - Statutory books, board minutes and shareholder resolutions.
People - Employment contracts, handbooks, holiday pay and any tribunal claims. - TUPE in asset deals. In an asset purchase, TUPE moves the employees across to you on their existing terms. In a share purchase the employer doesn't change, so TUPE doesn't usually apply. - Pensions. Confirm auto-enrolment is up to date. Any defined benefit (final salary) scheme needs specialist advice. It can be a liability far larger than the business.
Property - Title or leases for every site, rent reviews, break dates, dilapidations and whether the landlord's consent is needed for the deal.
IT and data - Who owns the systems and software, and are the licences transferable? - UK GDPR. Is customer data held lawfully, is there a privacy notice, and is the company registered with the ICO? Has there been a data breach? Where data goes to the US, check the transfer basis (for example the UK–US data bridge).
Regulatory - Sector licences and accreditations (FCA permissions, health and safety, environmental permits, trade body accreditations) and whether they survive a change of ownership.
What are the UK red flags to watch for?
- Filed accounts that don't reconcile with management accounts
- Late or missing Companies House filings
- Charges on the register the seller can't explain
- HMRC arrears, time-to-pay arrangements or an open enquiry
- One customer (or one contract) holding up the business
- Key contracts that end on a change of control
- Staff treated as self-employed who look like employees
- A defined benefit pension scheme
- A seller who is slow to give information, or keeps changing the numbers
One red flag isn't always a reason to walk away. It's a reason to adjust the price, the structure or the protections in the sale agreement. Several together usually are.
How does this fit with valuation?
Due diligence tests the numbers your offer was based on. If the earnings or working capital turn out lower, the price should move. Our guide on how to value a business to buy explains how the two connect.
If you're buying for the first time and want to work through this with a cohort of other owners, the Acquisition Accelerator covers due diligence step by step. This checklist is general information, not legal, tax or financial advice. Take advice on your own deal.
How do I get the checklist?
The working version, with space for notes, owners and status against each item, is free for Acquirers Club members. Join below and we'll send it to you.
Frequently asked questions
How long does due diligence take when buying a UK business?
For a small or mid-sized private company it usually runs for several weeks to a few months after heads of terms, depending on the quality of the seller's records and whether regulatory approval is needed. Starting the deal-breaker checks before heads of terms shortens it.
Do I need an accountant and a lawyer for due diligence?
For anything beyond a very small purchase, yes. An accountant should test the earnings, working capital and tax, and a solicitor should handle title, contracts, employment and property. You can do the first-pass checks on Companies House and the commercial review yourself.
What is the difference between due diligence on a share purchase and an asset purchase?
In a share purchase you buy the company with all its history, including tax and legal liabilities, so the checks go deeper and you rely on warranties and indemnities. In an asset purchase you choose which assets and liabilities to take, but TUPE moves the employees across, VAT may apply unless the sale is a transfer of a going concern, and Stamp Duty Land Tax can apply to property.
What are the biggest due diligence red flags in the UK?
Earnings that only reconcile with lots of 'one-off' adjustments, late or missing Companies House filings, unexplained charges on the register, tax arrears with HMRC, one customer making up a large share of revenue, and key contracts that end on a change of control.
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