Fall 2010 issue of Horizons

Acquisition Strategies: Do Your Financial Due Diligence!

Issues of concern discovered during financial due diligence include: • Unreliable financial information • Surprise adjustments to financial information • Adjusted earnings that don’t support the agreed-upon price or proposed debt financing • Lack of adequate collateral for proposed debt financing • Unforeseen negative tax consequences Some specific procedures that should be considered during the analysis of both financial and operational investigation fall into three categories: 1. General Company Health • Analyze the quality of their earnings review. Look for one-time unusual revenue and expenses, errors, or GAAP and deal adjustments • Review all business plans, strategic plans and forecasts • Assess the adequacy of internal controls

“For every disciplined effort, there is a multiple reward.”

Jim Rohn, Best-Selling Author & Business Speaker

We’ve all heard and experienced the old cliché that hard work pays off. But when it comes to acquiring a business, nothing could be truer. Without a doubt, a critical component of a successful acquisition is a thorough and complete financial due diligence process. And while this process certainly isn’t easy or quick to complete, the results of this hard work can literally pay off in dividends. Overall, the financial side of due diligence is similar to an audit, but actually on a broader scope. While analysis of the financials is crucial to the process, it is just as important to investigate the health of the company as well as analyze the operations and governance structure. Typically, the financial due diligence is one of the last steps before closing and can literally serve as a deal breaker.

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