An essential component of your practice succession journey is the Due Diligence (DD) process.
It will be vital that you prepare for the due diligence process well in advance. We have an extensive Due Diligence Checklist in the Practice Succession Report (PSR) for you to utilise as a starting point. This checklist will likely cover the majority of information requests and will provide an excellent framework to help you prepare your required information.
One of the crucial aspects of a successful succession is ensuring the due diligence process runs smoothly. An important cornerstone of the DD process is the preparation of a detailed Information Memorandum (IM). A well-presented and thorough IM should provide a comprehensive report of your practice; by doing so, when the DD is conducted on your business, there are no surprises for the purchaser. Everything about your business (good and bad) has already been disclosed and communicated to your successor (via IM). The DD process verifies the previously presented information (via the IM) in many ways.
A key reason why succession transactions fail is unforeseen issues discovered during DD. A well-run process should avoid these issues, particularly if all the information that should have been tabled before the DD process begins has been provided through the IM. Typically, ‘surprises’ are often ‘deal killers’ during DD and must be avoided!
When you come to the actual DD process with your successor, typically, your successor will provide their own DD Checklist. If you have prepared your business using the Practice Succession Report (PSR) DD Checklist, much of the requested information will have already been addressed.
As you progress through the DD process, there are a few matters that need to be addressed:
Non-disclosure agreements (NDAs): Before beginning the due diligence process, all parties must sign a non-disclosure agreement (NDA) to protect confidential information and your and your practice's goodwill.
Data room Due Diligence: Provide access to requested information via a secure data room platform where only authorised parties can access the information. The data room will enable you to manage the appropriate access for the different information and users.
Office Due Diligence: In addition to providing information via a secure data room platform, likely, your successor (mainly if they are external to your business) will want to come to your office and review IT systems, client files, etc. This process must be strictly managed so sensitive information is protected.
Redaction: Redact sensitive information from documents before sharing them with the other party (via data room). This includes removing all client names and personal information, all staff names and personal information, and further sensitive details irrelevant to the DD process.
Follow-up: Follow up with the other party after the due diligence process is complete to confirm that all confidential information has been destroyed or returned and to ensure that the confidentiality of the NDA has been upheld.
It's important to remember that protecting confidential information during due diligence is not a one-time task but an ongoing process that requires continuous monitoring and management. As with most matters in your succession planning, preparation is the key to your success.