Financial Due Diligence – Business Analysis, Evaluations, Audits & Profitability Analysis
Everyone knows that when you buy a business you have a full business analysis or an audit of the books done, in order to see what the seller did not disclose, not to find out if he did not disclose something. What is less understood is that a business analysis is even more important than people understand and should be done before spending bundles of money on a full audit. An analysis of the business tells you the viability of the business. Is the industry shrinking? Is this company becoming antiquated because they make parts that China or India is now producing for a quarter of the price? Is the management team inept or worse, stupid?
An evaluation of a business’s worth should not be just based on the financials, which is what almost all appraisers use. It must be based on how viable the business is? Will it survive in this economic condition? Does it have some uniqueness to it that will assist it to compete successfully in a highly competitive market? Financials are a representation of the past and only give a possible indication of the future. You need much more information then this.
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, and it definitely not the reason he is disclosing.
So you want someone to audit the books of a company you are interested in buying? That is great and it is definitely important. Before doing that you should think about doing a business analysis. This is the first step to then doing a profitability analysis. Why buy a profitable if its life expectancy is two years due to outside influences? Perform your financial due diligence to find out how healthy this business actually is.
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, and that even includes sex. When I was young bachelor of 28 years old, while on dates I talked more about the deals I was making then the exciting lady I was with.
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 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.
The first thing to remember when looking to start or buy a business is find an industry that you love and can be excited about working in.
The second thing to remember is there are bad business and good businesses. 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 my job to help you determine what a great business is, for you and to quickly determine how every business you look at, stacks up against your dream. It is my job to watch your back.
To help you do that, I offer 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 I 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:
- 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.
- Review and inspection of offer forms, purchase documents, and escrow instructions.
- 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.
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.
- Consulting by the hour. 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)