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Performing Due Diligence

Performing Due Diligence

Due diligence is a crucial part of purchasing or merging with a company. When you are looking to acquire a new business or service, seeking outside expertise from a trusted financial consultant can help you determine if the venture is worth pursuing.

While due diligence is an important function when completing complex business transactions, such as valuations and mergers, the information below highlights what you need to know:

What is Due Diligence?

Due diligence is the assessment of the legal, financial, and operational risks associated with a sale or acquisition. The process is generally performed by both parties involved before an offer is made and the transaction is complete. The information gathered helps an entrepreneur decide if moving forward is the most profitable option. Confirming that the company’s documents and data are accurate and as advertised is important to avoid future complications as your operations and offerings expand.  

What is Examined in the Due Diligence Process?

The process starts by reviewing the entity’s financial history, as well as information about the owner, employees, clients, methods of operation, and legal history, particularly regarding litigation or issues with licensing. As part of a comprehensive approach, your accounting and financial expert will examine every facet of the company’s existing procedures and policies.

Most of the documentation is readily available for perusal. Financial statements, tax returns, leases, and written company policies can generally be made available electronically, however, there are aspects of the due diligence process that require verification in person. It can be helpful to know about the office space, the condition of the equipment, and classified paperwork such as employee files. This visit can bring to light any unquantifiable red flags that may need to be addressed before committing to the deal.

Determining if the Acquisition is Worthwhile

If your acting financial representative notices inaccuracies during the due diligence process, it’s important to analyze how they may affect your future success, and whether it’s problematic enough to warrant passing on the deal. Most often, any unexpected findings can be worked out by modifying any existing terms of agreement to accommodate the new information.  

Expert Due Diligence Services in San Rafael

The decision to acquire another company requires professional guidance to ensure the purchase will ultimately result in profitability. If you are looking expand your business capability or transition ownership of your current venture and would like to enlist the help of an expert third party, call Sheri Neuman and our dedicated accounting professionals at Bridgewater CPAs today. 

Sheri Neuman, CPA | 05/29/2018