Financial Due Diligence – Business Analysis, Evaluations, Audits & Profitability Analysis
When you buy a business you should have financial due diligence done. This is to see what the seller did not disclose. There is always something hidden. The due diligence is not to find out if he did not disclose something.
So you want someone to audit the books of a company you are interested in buying? That is great and it is definitely important. What is less understood is that there are steps to do before spending a bundle of money on a full audit.
Business Analysis
The first step is to do a business analysis. Why buy a currently profitable business if its life expectancy is two years due to outside influences? An evaluation of a business’s worth should not be just based on the financials. That is all most appraisers use. It must be based on how viable is the business? Will it survive in future economic conditions? Does it have some uniqueness to it that will assist it to compete successfully?
The business analysis is even more important than most people understand. An analysis of the entire industry tells you the viability of the business. Is the industry shrinking or growing? Do they make parts that China or India is now producing for a quarter of the price so they are loosing market share? Is the management team inept or worse, stupid?
Profitability Analysis
After the business analysis is the time to do a profitability analysis. Perform your financial due diligence to find out how healthy this company actually is. A profitability analysis is an important tool that should be used when buying a business. It tells you the probability of a company surviving and flourishing in this economy. The fact that a business is here today is not an indication that it will be here tomorrow. Business buyers must always remember that there is a reason a seller wants out. It is definitely not the reason he is disclosing.
Financial Audit
Now you do the full audit part of financial due diligence. Financials are a representation of the past and only give a possible indication of the future. You need much more information than this. Combining the business analysis, profitability analysis and financial audit gives you the full picture. With all that data, you can make an informed decision to buy.
For more information about this service, call us on 800-864-0420.
Free 15-Minute Diligence Consultation
Are you one of the lucky people that get very excited about the possibility of owning your own business?
I certainly am. I have bought two businesses and started five. There are few thrills in life more exciting to me. That even includes sex when I was 28 years old. While on dates I talked more about the deals I was making then the exciting lady I was with.
Finding the Heavenly Business
The excitement of actually buying that perfect business can go on for years, if it is the correct one. Very much like being married to the right woman. It is heaven on earth. But what if you buy a business that you are sure is a winner and it is not? You could find yourself working 80 hours a week at a job you hate. This is very much like marrying the woman of your dreams and the marriage is a flop. You live in hell until you can get away from the mistake.
Finding Love
The first thing to remember when looking to start or buy a business is find an industry that you love. One that you can be excited about working in. Then you can look for the perfect business in that industry.
Was it good for you?
The second thing to remember is there are bad business and good businesses for you. One man’s dream is another man’s hell. The secret to happiness is to know the difference.
It is Willard Michlin’s job to make sure you locate, evaluate and purchase or start the business of your dreams. It is Willard’s job to help you determine what a great business is for you. Willard will quickly determine how every business you look at stacks up against your dream. It is his job to watch your back.
To help you do that, he offers a FREE 15 MINUTE due diligence consultation for any business purpose you need. This is a one-time offer and is for new clients only. You and he working together can look at the advantages and disadvantages of different industries as well as the advantages and disadvantages of a specific company you have located that you believe can be the business of your dreams. To qualify you only have to give us your name and email address and Willard Michlin will personally deliver this service to you.
Services Provided in a Financial Due Diligence Consultation
In collaboration with the client, Willard Michlin will provide the following:
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- Review all financial reports, tax returns and payroll tax reports. This will include an inspection of managements accounting records.
- Determine a realistic Seller Discretionary Earnings Sheet (SDE) based on what earnings are being reported and can be documented. This number is the actual profit from operations plus depreciation, amortization, interest expense, one owner’s salary, and other agreed-to personal expenses deducted on the businesses financial statements. This is not the number the seller or agent may report to you.
- Due diligence inspection of industry including past history and what the issues may be in the industry’s future.
- Collection of any market comparables available and other information to assist buyer in putting a value on the subject business.
- Tax and business consulting services included, as requested.
- Assist the client in understanding the terms and conditions of the existing or new lease.
- Assist the client in discovering the real reason that the seller wants to sell. (It is never what the buyer is told, and usually not what the seller believes.)
- Interview the sellers to get a total picture about how the company is operated and organized, when the information is not available any other way.
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The choice of which or all of the above services will be delivered is a function of the client’s needs and wants and the package purchased.
Estimation of Time to Complete Assignment and Fees
The estimate given on the phone to complete an engagement is based on information provided by the client, and estimated information to be provided by the seller. We will use our best effort to estimate a range of possible time needed. This is not a guarantee.
Fee Arrangements
Consulting is delivered by the hour and purchased by individual hours or packages. Price discounts for 5, 10, and 20 hour packages. (Price quote on request) Refunds given for hours purchased and not used
Flat fee package for $800.00 (Consulting not to exceed 3 hours) for a business review that does not include visiting the business location. This includes an inspection of the business records, assistance in negotiations, valuations, and reviewing business financial reports. This package does not qualify for any partial or full refunds for unused hours.
Fixed fee appraisal for any reason: For partnership liquidation, US immigration, IRS (gift, debt forgiveness, or any other reason) or for an exit strategy. (Price quote on request)
