John Carroll’s Post

How do you determine the financial due diligence of the deal? Financial due diligence is an investigative analysis of a company's financial performance. Like an audit, financial due diligence is conducted by outsiders looking to gain a better understanding of the financial situation that the company finds itself in, and its prospects for the future. Financial due diligence also sets out to uncover issues that might not be readily apparent in the financial statements. After discovering the incentive of the seller, go ahead and get all the financial details on the table, so that you can start working with the vendor to create a business that meets their most important needs and has an equitable profit for you. The process begins by analyzing 5 years of financial statements. 1. Income Statement (past five years) Check for the volatility of earnings across periods. If earnings are volatile, be sure to establish exactly what’s driving that volatility and whether it’s likely to continue. Closely examine expenses, see if there are areas where expenses seem irregularly high, and investigate why this is the case. Examples could be salaries growing faster than overall revenue, marketing expenses that aren’t reflected in growing revenues Understand the quality of earnings. Are headline revenue figures being driven by one big client or several clients? If one client were to leave the stable of clients, would revenue collapse? Or are more clients being added all the time and staying for longer? Look for exceptional items. Sellers often draw attention to one-off items that affect operating income. For example, a strike led to a factory shutdown for two weeks. Ask yourself: Is this an extraordinary item or one that can be expected over 5 years of operating? 2. Balance Sheets (past five years) Evaluate the target’s marketable assets (i.e. those that can be liquidated). Assess whether these assets could be sold for considerably more/less than the carrying value on the balance sheet. Evaluate other potentially marketable assets not used in day-to-day operations, such as patents and unused property. These also have the potential to generate hidden value in the transaction. Pay particular attention to the debt-equity ratio, checking how it stands up against your own firm’s ratio and that of the industry at large. As a rule of thumb, there should be less debt in the target company’s make-up than that in your own.

How do you determine the financial due diligence of the deal? Financial due diligence is an investigative analysis of a company's financial performance. Like an audit, financial due diligence is conducted by outsiders looking to gain a better understanding of the financial situation that the company finds itself in, and its prospects for the future. Financial due diligence also sets out to uncover issues that might not be readily apparent in the financial statements. After discovering the incentive of the seller, go ahead and get all the financial details on the table, so that you can start working with the vendor to create a business that meets their most important needs and has an equitable profit for you. The process begins by analyzing 5 years of financial statements. 1. Income Statement (past five years) Check for the volatility of earnings across periods. If earnings are volatile, be sure to establish exactly what’s driving that volatility and whether it’s likely to continue. Closely examine expenses, see if there are areas where expenses seem irregularly high, and investigate why this is the case. Examples could be salaries growing faster than overall revenue, marketing expenses that aren’t reflected in growing revenues Understand the quality of earnings. Are headline revenue figures being driven by one big client or several clients? If one client were to leave the stable of clients, would revenue collapse? Or are more clients being added all the time and staying for longer?

Reviewing business financial statements goes beyond just the numbers. It's about understanding the context behind transactions and gaining a comprehensive perspective on business operations and financial position. In our last post, we shared key things to consider when reviewing financial statements and conducting due diligence. Check it out here: https://lnkd.in/djpZpBpB Below are some more critical questions to consider during the due diligence process! #financialstatements #duediligence #businessadvice #buinesstips

Steps for a Stellar Financial Due Diligence Process Investing is a thrilling adventure, but before you leap into the unknown, it's crucial to equip yourself with the right map – financial due diligence. This vital process helps you uncover the hidden gems and avoid the murky pitfalls. So, grab your magnifying glass and let's explore the key steps for a foolproof financial due diligence journey: 1. Charting the Course: Defining Your Goals and Scope Before setting sail, know where you're headed. Clearly define your investment goals and desired level of detail. Are you looking for a quick financial snapshot or a deep dive into the company's inner workings? Tailor the scope to your needs and resources. 2. Gathering the Treasure: Requesting Key Documents Financial statements are your treasure map, revealing the company's financial health and performance. Request audited financial statements (income statement, balance sheet, cash flow statement) for the past 3-5 years. Don't forget tax returns, legal agreements, and any relevant due diligence reports. 3. Analyzing the Gold: Scrutinizing the Numbers Time to put your detective hat on! Analyze the financial statements for trends, ratios, and red flags. Look for patterns in revenue, profitability, and cash flow. Compare these metrics to industry benchmarks and competitor performance. Don't be afraid to ask questions and delve deeper into any inconsistencies. 4. Assessing the Risks and Rewards: Identifying Potential Issues No treasure comes without its guardians. Assess potential risks, including legal liabilities, operational inefficiencies, and market fluctuations. Evaluate the company's competitive landscape, regulatory environment, and future growth prospects. 5. Building the Bridge: Communication and Negotiation Throughout the process, maintain open communication with the target company and your advisors. Discuss your findings, clarify concerns, and negotiate terms based on your analysis. Remember, due diligence is a collaborative effort to reach a mutually beneficial outcome. #mergersandacquisitions #financialduediligence #duediligence #riskassessment #investmentstrategy #financialanalysis

Making Smart Business Decisions? Finvisor's Due Diligence Can Help! Ensure informed decision-making with Finvisor's comprehensive due diligence services. Minimize risk and maximize success! Learn more in our blog: https://lnkd.in/gTqzJd8S #financialconsulting #business #investing #accounting #finvisor

Shout out to Forbes Partners, Braxton Savage, CPA, James Morgan, Garit Lawson, Tanner Ainge, Chris Badger, CPA, & Layne Smith for leading an informative discussion on preparing for capital transactions! Here are the key takeaways: 1. Quality of earnings reports is of utmost importance. 2. Establishing solid financial procedures and conducting annual audits (including monthly interim financials) is critical. 3. Having excellent advisors who can guide you through the process is vital. Favorite quote: "Show the buyer where all the bodies are buried". Thank you for sharing your insights and providing an open and informative session this week!

Our next webinar 'Navigating Due Diligence: Minimising Stress in Sales Whilst Running Your Financial Planning Business' will be held on 16th May. Know more details here: https://lnkd.in/eXS9KY8R Register for free: https://lnkd.in/gJwrH3Mv What you will get from attending this session: 1. Stress Reduction and Deal Acceleration: Starting this process as soon as possible (way ahead of starting the actual sale process) will allow you to complete a deal sooner and with far less stress. 2. Efficient Due Diligence Preparation: Understand the intricacies of the due diligence process and receive practical tips on streamlining your preparations. Learn how to organize your documentation and data well in advance, ensuring a smoother and more efficient due diligence phase. 3. Insider's Perspective on the Due Diligence Timeline: Acquire a detailed understanding of the typical timeline for due diligence, enabling you to plan ahead and set realistic expectations. Knowing what to expect at each stage will empower you to navigate the process smoothly.

What's the biggest surprise you've uncovered during financial due diligence? Share your 'aha' moment and let's exchange some eye-opening experiences! #DueDiligenceDiscoveries #BusinessInsights #valuationexperts #qualityofearnigs Peak Business Valuation

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