Due Diligence Report

A Due Diligence report is a report compiled on the trading profitability of a business by a qualified accountant. The report is usually completed by a physical examination of the accounts and records of the business over the most recent 12 month period of trading. The reports produced are comprehensive and produce a substantial amount of verified information however, the main focus of the report is on the result of the average net weekly profit. This figure represents what the actual trading profit of the business is before any proprietors drawings, loan repayments, depreciation or one off expenses claimed by the current owner which will not apply under the new owners.

With newsagency due diligence reports, an assumption is made that two purchasers (usually husband and wife) will be active in the business and work an average of 55 hours each per week. These reports are vitally important as they confirm to the purchaser the level of profitability of the business. The reports are also usually accepted by lenders as confirmation of profitability but only if completed by an accountant who is accredited or on the panel of the lender. It is therefore very important to have a due diligence report completed by an accountant who is accredited by the bank, otherwise a second report may need to be obtained to satisfy the bank. Depending on the location of the newsagency and complexity of the information, due diligence reports usually cost between $2000 and $3000 to produce. They are strongly recommended as a necessary step in the purchase of a new business in which a substantial commitment of personal assets is being made.