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  • Entrepreneurs

    How to use Companies House for due diligence

    I thought it might be helpful to put together a guide on how you can use Companies House to start the process of property due diligence.

    I have used the image of an iceberg as a metaphor that there will be much below the surface and this is what you need to research.

    Due diligence is the process of researching a person or business before signing a contract.  It is a process that mitigates your risk and is vital in every aspect of property investment where there is a commercial interaction.

    Remember that Companies House can be used for DD on both companies and individuals and is a very useful resource ... and free to use, so there is no excuse!

    There are a number of things you can glean from Companies House that will start the due diligence process.

    The first is to check the date of incorporation to see how long the company has been trading.

    Then check to ascertain if a company is administratively delinquent.  This would mean that accounts are not being filed on time.  

    Example how this displays:

    A "Proposal to strike off" notice is a big red flag.

    Bear in mind that if it is a new company, it may not have had a chance to file accounts yet.  That is not sinister, but bear in mind the age of the company, especially if it is making big claims about its success and wealth.  I often see companies claiming to have been in business for 5 years and claiming big success, but when I look at CH, they've only been trading 2 years and have not filed any accounts.  This should also be a red flag that they have not been truthful about their history imho.

    If there is a "charges" tab, you should click on that to see how many entities have charges against the company.  These could be bridging loans, mortgages, or individuals taking charges because they have loaned the company money, or because they have achieved a court order for an unpaid debt.  If they have excessive charges from individuals against them, that would be a cause for worry.  

    Then click on the "People tab" and click on the individual names.  This will bring up a list of all the companies that that individual is a director of. See if they have a long trail of dissolved or struck off companies, particularly if those companies have similar or the exact same name.  If they do, they could be just closing down one company to rid themselves of the debts or to hold on to clients' money, and then just starting up again to repeat the process.

    The next thing is to look at the Company name and then Directors names and put them into google to see what comes up.  I recommend searching at least the first 6 pages of google results, as people can "sink" negative links by dominating page 1 of goole with their own results.

    I then take the company number and put it into DueDil.com to see if the company has net assets.

    It displays like this:

    The main things to consider are trade debtors and net assets.  In the example above, the company is not financially healthy imho.  

    DueDil can also be used to get a credit report on a company, but this is a "paid for" option.  It does indicate if there has been a change to a company's credit status, so it might be worth buying the report, if you see that flagged up.

    Generally speaking, a company claiming to be successful would have significant positive net assets/cash evidenced.  

    There may be legitimate reasons why they haven't, so it would be reasonable to contact the company and ask them why they don't have net assets to show on CH and see what their explanation is.

    If you can find nothing at all out about a company or its directors, then that again should be a warning sign imho.  Maybe they have changed their name slightly to avoid having DD done on them?  I know of several property sharks who have done this.

    Another warning sign if if people start to become unpleasant or hostile when you ask DD questions of them. Any legitimate company and set up would welcome the chance to be transparent and answer any concerns or questions you may have.

    Time and time again I have found that when people are challenged over DD issues, they try to discredit the person asking the legitimate questions, rather than answer the questions. Another warning sign imho.

    Finally, if in doubt, ask on Property Tribes and facebook groups.

    Any legitimate company with nothing to hide will not have a problem with DD being done on them imho. 

    This is a non-exhaustive guide and I would be very grateful if other PT members could add their thoughts to it or any other processes they do when undertaking property due diligence.

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    I don't agree with you Vanessa.

    You're not bothering to mention that many companies use expensing to limit tax liability! For example, home-based businesses can expense mortgage, and utilities based on what percentage of business is done from the property. So, what may look like a company making a loss can really be down to efforts to using expenses to claim less taxes - pretty smart if you ask me.

    I'd rather rather show a loss in my company accounts (due to using my expense entitlements) than to show lots of profit in my company accounts and be saddled with the taxes!!!!


    Hi Ruth,

    If that was the case, then it would be a legitimate reason and you would no doubt be happy explaining that to anyone who had an interest. As explained in my post above, I have given caveats on how to interpret limited information.  The problem arises when people are unwilling or unable to give an explanation, or take it personally that you are doing DD on them, and do not wish to enable your understanding, many becoming hostile. That is a red flag to me, born out of experience.

    I hope that clarifies my position in this regards?


    Interesting & helpful!

    I look at the directors then see how many other companies each director is a director of: (Simple link-clicks).  Which tells you how many have been dissolved/in-liquidation etc.

    Always interesting to see a bright shiny new company (so the records look good) with a Director who appears to have, shall we say, an unfortunate history of unlucky failures...  Also beware sometimes people use subtly different names - e.g. Alfred E Newman, A E Newman, Alphred E Newman...


    The accounts also do not always show a measure of the company's true success - particularly if the accounts are filed under the "small companies" regime (you only need to provide "abbreviated" accounts - i.e. you give a lot less detail).  You also only provide a balance sheet - that in itself tells you nothing about how much money the company made in the relevant financial year (because it does not tell you how much was paid in salaries or in dividends, for example).  The liabilities column also does not in itself tell you much.

    For example, for one of my companies:

    * shareholder funds was just under £43k for FY ended 2016. This is down slightly 6k from for FY ended 2015. SO you might interpret this as the company is not growing; however, the company income was actually up about 11% for the year (and I took healthy dividends)

    * liabilities shows as around £32.5k. However, what it doesn't tell you is that this was made up almost wholly of corporation tax and VAT then due (and which has since been paid)


    Hi Rassie,

    Good points but you are not using your "success" to try and sell something off the back of it and you've volunteered legitimate reasons why your CH records are as they are.

    I find that when most gurus are asked legitimate questions, they turn hostile and that is a red flag to me.

    The problem I have with people who've been in the business for a year, is that there is no DD via Companies House!  But that they have only been in business for a year surely questions if they have the experience to be teaching others?

    I would suggest a minimum of 5 years would be a good time frame to be undertaking an activity before trying to sell education.  This will allow a lot of natural DD resources to build up for people to reference.


    "I would suggest a minimum of 5 years would be a good time frame to be undertaking an activity before trying to sell education." I agree. Certainly very true in the area where my main work is.


    Using filed accounts is a useful part of DD imo

    It isn't a silver bullet by any means, but it is useful, even with just abbreviated accounts

    How the Directors choose to run their company / companies is, in part, a reflection of what they want to do with it / them

    If someone is portraying themselves as an excellent project / programme manager, for instance, then not filing annual returns / accounts on time raises a question about their ability to manage admin etc.  I would ask about that.

    If someone is looking for investors into one of her ltd company property development opportunities and selling the opportunity on her track record, her other companies should reflect that track record.  Were I to be raising funds from investors for my nth development project, I would be sure to point potential investors to the accounts for the n-1 and n-2 development companies accounts - which would have been run on the basis that I was going to use them as part of my fundraising efforts in future.  I would have planned ahead and worked hard to ensure the accounts raised as few questions from potential investors as possible.

    In nothing else, checking filed accounts as part of DD might give you some questions to ask as you continue your research.

    On the flip side of that, the accounts could look perfect and you could still be on the receiving end of a bad experience / scam / rip off etc.


    I agree JP.  Like my original post said, DD is both an art and a science.

    It's getting as many pieces of the jigsaw puzzle together as possible and then trying to see the picture on the box.  

    The more pieces, the clearer the picture and the more your risk will be mitigated.  If people are unwilling or unable to assist you in finding a piece or adding a piece, then that is a red flag to me.


    I can't find anything on DueDil.com that isn't a paid for option.