Financial Due Diligence is the process of analyzing business financials, accounting records and tax forms in order to obtain reasonable and sufficient evidence that business is economically viable and free from misstatements, financial fraud and corruption.
All corporate mergers and acquisitions, irrespective of the target company size, start with the due diligence.
Buying a business or entering business agreement/partnership is an important decision that cannot be made without thorough analysis of company’s financial position and performance, as well as identifying significant issues that may affect buyer’s decision to move forward with the deal.
Often results of the financial due diligence become starting point for the price negotiation and re-negotiation.
Financial due diligence is similar to an audit in many ways, however there are some important distinctions.
While auditors’ report is built around one year look-back period, due diligence report usually covers 3 or more periods.
The focus of each report is also different: auditors perform standard procedures to confirm that company’s financial statements are free from material errors and misstatements while financial advisors, performing due diligence, cover some broader scope.
Financial due diligence report helps potential buyer in obtaining answers to the following questions:
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How sustainable company’s earnings are?
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Are any unusual deviations in the historical trends of sales and expenses?
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What historical working capital needs are?
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Are assumptions used in company’s projections and forecasts enough conservative and realistic?
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How reliable is the company’s system of financial controls (if any)?
The scope of corporate due diligence can vary significantly depending on the specific goals buyer (or any other interested party) sets, size of the company, look-back period and so on.
Volena Tax Consulting is a proud provider of high-quality due diligence services.
Our financial professionals will definitely help you to understand the target company in deep details and make the inform decision about the proposed deal.
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