Are you performing proper due diligence when purchasing a business?

 

The first thing that you should ask yourself when looking at acquiring a business is the purpose of the purchase. Is the objective expansion, market share? competitive advantage? or intellectual property? By defining the direction of this transaction in advance the step to facilitate proper due diligence will solidify the strength of the deal. It is essential to take the following items into consideration during the Due Diligence period.

Financial Evaluation

Financial analysis is an extremely crucial step in the process of purchasing a company and will define the current value in the sale price. The areas that need to be focused on are as follows;

  • Balance Sheet
    • A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.
  • Operating expenses
    • Those expenditures that a business incurs to engage in activities not directly associated with the production of goods or services.
  • Cost of sales analysis
    • Retail: The purchase cost of inventory value of merchandise sold during a stated period plus the cost of direct work.
    • Manufacturing: The production cost or inventory value of goods sold during a stated period.
  • Current valuation
    • The process of determining the current worth of an asset or a company.
  • Revenue
    • Sales from all lines of business

After pursuing the answers to the financial questions, there is further due diligence to be made in the effort to ascertain that the market is ripe for possible expansion. This information will require past, present, and forecasts for the future of the company and industry.

Market Valuation

Market Share

Brand Value

  • How is the company perceived? What is their reputation among those in the industry and their customers?

Product Segmentation

  • What is the line of business?
    • Line of Business: General term that refers to the product/service or related set of products/services that serve a particular customer transaction or business need.

Industry Growth Trends

  • What is the growth rate of the industry?

Customer Demographics

  • How often is the company getting repeat business? What portion of its current business is made up of repeat business?

Operational Efficiency

  • How many employees do they currently have?
  • What is their management style? What are the qualifications and experience of the top management?

How many accounts does the company have?

  • What is the current relationship between the business and its customers?

Where does Lions Assurance Financial fit in?

Lions Assurance Financial brings knowledge, experience, and well-researched insight into the area of professional financial advisory. At Lions Assurance Financial it is our goal to help our clients in the acquisition process and provide risk management services throughout the transaction.

Scroll to Top