When a business sale or investment is underway, due diligence is often described as a deep dive into the financials. In reality, it goes much further. Buyers are not only assessing profitability and cashflow; they are looking for risks that could affect value after completion. While most sellers expect their accounts to be reviewed in detail, the issues that derail transactions are often found elsewhere.
The most challenging problems in due diligence tend to arise in areas that have been overlooked or underestimated. Tax exposures, poorly documented contracts, intellectual property ownership, pension liabilities, and people-related risks can all emerge late in the process and create uncertainty. These issues do not always stop a deal entirely, but they can delay completion, reduce value, or introduce complex negotiations.
Understanding where these risks typically arise, and addressing them early, can make a significant difference to the outcome of a transaction.
Tax: Hidden Exposures That Surface Late
Tax is one of the most common sources of last-minute disruption in due diligence. Even well-run businesses can uncover historic issues once a buyer’s advisers begin their review. These might include inconsistencies in VAT treatment, PAYE or IR35 concerns, or corporation tax positions that were taken without full documentation.
Often, the issue is not the size of the exposure but the uncertainty surrounding it. Buyers want clarity. If tax risks are identified late, they may seek price reductions, indemnities, or escrow arrangements to protect themselves. This can complicate negotiations and reduce net proceeds for the seller.
Early tax review helps identify and quantify any risks in advance. Addressing them before a transaction begins allows you to control the narrative and avoid reactive negotiations. It also demonstrates strong governance and reassures buyers that the business has been managed responsibly.
Contracts: The Importance of Documentation and Clarity
Commercial contracts are another area that frequently causes problems during due diligence. Many businesses operate on the basis of long-standing relationships or informal agreements that work well in practice but are not fully documented. When a sale is underway, buyers want certainty around key contracts, including customers, suppliers, and lenders.
Issues often arise where contracts are unsigned, out of date, or contain change-of-control clauses that could be triggered by a sale. In some cases, revenue may be tied to agreements that are not legally robust, creating uncertainty about future income. This can lead buyers to question the sustainability of earnings and, in turn, the valuation.
Reviewing and updating key contracts well before a transaction begins helps avoid these challenges. Clear documentation provides reassurance to buyers and supports a smoother due diligence process.
Intellectual Property: Ownership and Protection
Intellectual property is a critical asset for many businesses, yet it is often not formally reviewed until due diligence begins. This can lead to surprises. Software, designs, trademarks, and proprietary processes may be central to the business, but if ownership is unclear or protection is inadequate, buyers may view this as a significant risk.
Common issues include IP created by contractors without formal assignment agreements, trademarks that have not been registered, or licences that are not transferable. These gaps can take time to resolve and may delay a transaction.
Early review of intellectual property ensures that ownership is clear and protections are in place. This strengthens the business’s position and reduces the likelihood of delays or renegotiation during a sale.
Pensions: An Area That Is Easily Missed
Pension arrangements are sometimes overlooked in smaller transactions, but they can have a material impact on value. Buyers will want to understand any obligations associated with employee pension schemes, including defined contribution and, where relevant, defined benefit arrangements.
Issues can arise where contributions have not been managed correctly, documentation is incomplete, or legacy arrangements create ongoing liabilities. Even where risks are limited, uncertainty can lead buyers to adopt a cautious approach.
Reviewing pension arrangements in advance helps identify any issues and provides reassurance that obligations are being met. It also allows time to address potential concerns before they become a focus during negotiations.
HR and Employment Matters: The People Behind the Numbers
Employees are often a business’s most valuable asset, yet HR and employment matters are sometimes treated as secondary during preparation for a sale. Buyers will examine employment contracts, policies, and any potential disputes. They will also want to understand key personnel dependencies and retention risks.
Problems can arise where contracts are outdated, documentation is incomplete, or there are unresolved issues with staff. Even minor inconsistencies can create additional queries and slow the process. In some cases, uncertainty around key individuals can affect buyer confidence and lead to requests for earn-outs or retention arrangements.
Ensuring employment documentation is up to date and clear reduces these risks. It also signals to buyers that the business is well managed and that people-related matters have been handled professionally.
How Transaction Services Expertise Makes a Difference
While each of these areas can present challenges, they are all manageable with the right preparation. Transaction Services advisers bring experience of the due diligence process from both buyer and seller perspectives. They know where issues are most likely to arise and how to address them early.
Pre-sale reviews can identify potential risks, quantify exposures, and ensure information is presented clearly. This reduces surprises during due diligence and allows sellers to enter negotiations from a position of strength. It also helps maintain momentum, which is critical in any transaction.
Engaging advisers early does not mean committing to a sale immediately. It means being prepared so that when an opportunity arises, the business is ready.
Preparation Protects Value
The difference between a smooth, high-value transaction and a difficult, discounted one often comes down to preparation. Overlooked areas such as tax, contracts, intellectual property, pensions, and HR may not seem urgent in day-to-day operations, but they become highly visible during due diligence.
Addressing these areas early reduces risk, builds confidence, and supports a more efficient process. It also allows business owners to focus on negotiating the best possible outcome rather than responding to unexpected issues.
Start the Conversation Early
If you are considering a sale, investment, or ownership transition, now is the time to review the areas that are most often overlooked in due diligence. Early preparation helps protect value and ensures you are ready when opportunities arise.
At UHY Williamson Croft, we work with UK business owners and management teams to prepare for transactions, identify risks, and support smooth due diligence processes.
Get in touch to discuss how our Transaction Services team can help you prepare with confidence and protect value throughout your transaction journey.