Due diligence is the review a buyer runs before purchasing a company, to learn what they are really buying and which risks they take on. It covers the financial, tax, legal and accounting areas — from financial statements and tax returns to contracts, liabilities and litigation. In Slovakia and the Czech Republic the process is much the same; the concrete legal windows differ, so a well-prepared seller sells faster, for more, and with narrower warranties.
What is due diligence and why does the buyer run it?
Due diligence is a systematic review of a company before its acquisition. The buyer verifies that the business matches how the seller describes it — that the numbers add up, there are no hidden debts, it owns what it claims, and no disputes or tax arrears are looming. It is a standard step in any serious sale of a share or a whole limited company in both countries.
The motive is not distrust but protecting the investment. The price is agreed on the company’s condition; if the review uncovers a problem, the buyer lowers the price, asks for extra warranties, or walks away.
Which areas does the buyer review?
The scope varies with size, but the core is the same in Slovakia and the Czech Republic. Financial due diligence looks at the last three years of financial statements, revenue structure, margin, cash flow and the real value of assets. Tax due diligence checks whether returns were filed correctly and on time. The legal review examines ownership, contracts, liabilities, disputes and compliance. Accounting due diligence overlaps with the financial part but focuses on whether the books reflect reality.
Example: the buyer finds that a single customer accounts for a third of revenue. It is not unlawful, but it is a concentration risk that affects the price. If you would rather have the numbers checked professionally, our Slovak tax advisory can help.
What documents should the seller prepare?
A well-prepared seller has the paperwork ordered before the first question:
- financial statements and the general ledger for the last three years,
- income-tax and VAT returns with filing confirmations,
- contracts with key customers, suppliers and employees,
- loan and lease agreements and a list of liabilities,
- asset and intellectual-property records,
- an overview of pending or threatened disputes.
Retention rules differ. Slovakia requires all accounting documentation to be kept for 10 years. The Czech Republic keeps financial statements and annual reports for 10 years but other accounting records for 5 years. Incomplete files signal carelessness and often justify a price cut.
What findings and red flags put buyers off?
The most common problems are not dramatic frauds but ordinary lapses — unrecorded liabilities, shareholder loans without a contract, incorrectly applied VAT, missing contracts, or assets on the books that do not exist.
Tax is especially sensitive, and here the two countries clearly diverge. In Slovakia the right to assess tax generally lapses five years after the end of the year in which the filing obligation arose, and seven years where a tax loss is claimed (Section 69 of the Tax Code). In the Czech Republic the period is three years and can be extended up to ten (Section 148 of the Tax Code). Until it expires, the authority can assess arrears against the new owner, so buyers scrutinise past tax audits closely.
What is vendor due diligence?
Vendor due diligence is a review commissioned by the seller — the process in reverse. An independent adviser walks through the company as a buyer would, exposes weak spots and names them before the other side does, giving the seller time to fix them or prepare an explanation. It pays off in larger deals or competitive sales, where its cost is usually lower than the discount an unexpected finding would trigger.
Because the review stands or falls on the quality of the bookkeeping behind it, orderly accounts are the real foundation — a theme we develop in our note on professional accounting in Slovakia.
How does due diligence affect price and warranties?
The outcome feeds straight into the share-transfer agreement, and the mechanics are the same in both countries. If nothing serious surfaces, the price holds. If a risk appears, the buyer manages it by cutting the price, holding back part of the price in escrow until the risk is resolved, or through representations and warranties in which the seller stands behind the company’s condition.
Representations and warranties are the heart of the contract: the seller confirms, for instance, that there are no undisclosed debts or disputes, and undertakes to compensate loss if the opposite proves true. The better prepared the company, the narrower the warranties needed.
How to prepare well in advance?
The best preparation is continuous, not a scramble weeks before the sale. A company with orderly books, closed contracts and paid taxes passes review smoothly. If you plan to sell, start at least a year ahead: tidy the asset register, complete missing contracts and settle open shareholder balances.
A well-organised data room — a structured folder the buyer is given access to — looks credible and speeds the whole process. A seller who appears prepared signals a well-run company, and that shows up in the price.
Selling a company is decided in the details due diligence brings to light. We are happy to prepare your company for review so you enter negotiations from a position of strength.
FAQ
How long does due diligence take?
It depends on the company’s size and the scope of the review. For a small limited company with orderly records it is often a few weeks; for larger deals two to three months. A prepared data room saves the most time, because the buyer does not have to wait for documents.
Does the seller have to disclose everything?
In practice yes, if they want to sell. Without access to the documents the buyer cannot price the risk and will either walk away or insure against it with a lower price. Sensitive data is protected by a non-disclosure agreement signed before the data room opens.
What if due diligence finds a problem?
A finding need not end the deal. It is usually handled by a price reduction, an escrow holdback, or contractual warranties. What matters is disclosing the issue and offering a solution; a concealed finding the buyer discovers alone does far more damage to trust.