Due diligence is where a buyer checks the documents behind your practice. If you have prepared them in advance, it mostly confirms what you already know.
Due diligence is the stage where a buyer confirms the practice is what it appears to be. For a tidy firm it is straightforward. Delays and surprises come from information that exists only in the owner's head. A sensible buyer reviews a standard set of documents, reads each one for what it says about risk, and reduces the price for specific warning signs. A simple data room prepared in advance keeps the process quick and calm.
A good buyer reads each document for what it says about the firm. The fee analysis shows how much income repeats and whether it's growing or drifting. Concentration and retention tell them how safe that income is. WIP and lockup are a proxy for how disciplined the firm is — high lockup can mean under-billing, scope creep, or work sitting unfinished. Staffing and engagement letters reveal key-person risk and compliance hygiene. None of these need to be perfect. They need to be visible and explained before the buyer finds them.
Few of these stop a deal on their own. The damage comes when a buyer discovers one the seller had not mentioned. Tell the buyer about each of them early, and the buyer will trust the rest of what you send.
A single, well-organised cloud folder holding the documents in the checklist, kept current, is enough. Structure it by section (fees, clients, staff, compliance, financials, premises). A prepared data room shows the buyer a well-run firm and speeds up the process considerably. It can also support a better valuation, because it reduces the risk the buyer sees. Preparing it also flushes out anything you'd want to tidy before a buyer sees it.
The depth of due diligence varies with the buyer. In a large, multi-party process led by a broker, buyers may review every file. A direct buyer who knows the sector can limit the review to the items that affect value and risk. When you deal directly, the person reviewing your firm is the person who will run it, and they want the process kept short and confidential.
Once diligence confirms the picture, the deal moves to heads of terms — price, structure, timeline and your involvement — and then to completion and a protected handover.
At minimum: a 3-year fee analysis by client and service, top-10 client concentration, client gains/losses, WIP and debtor/lockup figures, a staff list with contracts, engagement letters and AML records, PI history, a systems overview, and recent accounts. Keeping these in one organised folder speeds everything up.
Owner-dependency and client concentration, followed by retention trends and billing discipline (lockup). They're assessing how safe and transferable your income is once you're no longer running every relationship.
With a direct buyer who knows the sector and a prepared data room, it can be light and quick, and can be done in weeks. A multi-party broker process usually takes months and goes into more detail.
Yes. Disclosing issues up front — a lapsed engagement letter, a lost client, an old complaint — builds trust and keeps the deal on track. Problems discovered late do far more damage than problems disclosed early.
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Andy Jackson, co-founder