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Business acquisition requires careful evaluation. Key issues include the purchase price, the implications of the proposed structure, and financial, taxation, and commercial aspects. A buyer’s due diligence involves examining available information and physical inspection data.
Before you acquire a business, you must investigate. Ensure the business meets your objectives. Also confirm you are not overpaying. This helps you avoid costly mistakes. A bad investment will lose you money.
We call this investigation process “Due Diligence.” It is the most important step before you commit to buying a business. You can generally insert a clause in your heads of agreement or contract of sale. The clause should state: “Sale subject to a satisfactory accountant’s due diligence.”
You can carry out due diligence in different ways. First, you can physically inspect the business. You can then record your observations using an intrusive approach. Alternatively, an experienced accountant can examine the financials and make informed decisions. We encourage using both methods simultaneously. However, if you feel comfortable with only one method, we are happy to adopt that approach as well.
Due diligence includes financial and legal components. An experienced accountant can perform the financial due diligence for you, while a lawyer can handle the legal legwork.
Typically, the buyer and seller agree to the sale under certain terms first. Then due diligence takes place. The contract signing occurs afterwards. The purpose of due diligence is to assess the business’s financial value and growth potential. It involves an in-depth investigation of business records, supporting evidence, and detailed information. This process gives the buyer bargaining power. Armed with acquired information, the buyer can determine whether the business is as profitable as the seller claims.
Here at A One Accountants, we have vastly experienced accountants. They work in varied fields like accounting, audit, and taxation. We can provide you with much-needed input and professional advice.
Our job is to read the story that the numbers tell us and then convey this information to you.
The due diligence process allows you to verify key facts. You can check if the business’s financial status matches the seller’s sales prospectus and other documentation. You can also use our report to understand cash flow. Additionally, you can estimate the revenue that the business activity will generate.
We analyze information including financial statements such as Income Statements, Balance Sheets, Profit & Loss Statements, Stock/Inventory, Assets, Liabilities, Equity, contracts & agreements, Cash Flow, and others.
The scope of the process depends greatly on the accountant’s professional experience. We follow a carefully drafted checklist for documentation and relevant information before starting or carrying out the due diligence.
After analyzing the available information, we probe many aspects with careful detailed analysis, aiming to identify possible causes that could have led to specific circumstances. For example, a decline in profit over the last few years could stem from poor management, an increase in supply costs, the resignation of a key manager, or the loss of a specific large client.
When purchasing a business, the principle of “buyer beware” always applies, so an expert opinion can go a long way in determining whether the business will suit your needs.
Here at A One Accountants, we have a team of professional accountants experienced in performing small business due diligence. If you are in the process of acquiring a business, do not hesitate to hire professional help. You can not only save thousands on the purchase costs but also estimate how much you would be able to make from the business in the future. Some banks require a due diligence prior to purchase and an accountant’s sign-off, so you can tick off this important compliance aspect from your new business buying checklist as well.
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