When a company needs due diligence
Basic financial statements show what has happened. Due diligence shows what you are buying, what you are investing in and which risks you are taking on.
A balance sheet and an income statement tell you what happened in a company up to a certain date. For an important business or investment decision that is not enough, because what interests you is what the statements do not say directly: how sustainable the result is, which liabilities are not yet visible, and what the company is really worth.
Situations where it pays off
Due diligence is particularly useful in several situations:
- buying or selling a company
- bringing in an investor
- changes in ownership
- a larger investment
- reorganisation and other strategic decisions
In each of them someone takes on risk on the basis of someone else’s numbers. The analysis is there to check those numbers before signing, not after.
What is actually examined
The scope depends on the decision in front of you, but the analysis most often covers:
- financial statements, revenue and costs
- profitability and cash flow
- assets, liabilities and indebtedness
- financial and business risks
- business processes and contractual relationships
- sustainability of the business model
- contingent liabilities that have not yet been booked
- company valuation
Why the systems matter too
The numbers in the statements are produced by information systems. If data is copied by hand between the warehouse, sales and accounting, the reliability of the statements itself becomes a risk to be assessed. That is why we include a review of the systems the financial data comes from.
What you get at the end
The result is a clear overview of the company’s financial position, business model, risks, potential and value, written so that management or the owner can make a decision on the basis of it.
If you are facing a decision like this, describe the situation to us.