The day is finally here. You purchased an IT consulting company and are ready to take on the world. During the purchasing phase, you ran through all the checklists, made sure the numbers are reasonable and accurate, and have the prior owner signed on to help out for a few months. What could go wrong?

 

At some point during your due diligence, you probably met with the staff to determine each person’s role in the company and assured them you want them to remain. After all, the customers know them and are comfortable with their work. It makes sense to keep the staff intact.

 

In a perfect world, everything will fall lovingly into place. With all due respect, we don’t live in a perfect world no matter how much planning we do.

 

The first week must be about organizing and administrative tasks. Moving one company into another is challenging. Here is a small list of things to consider:

 

· Payroll – bringing the new employees into your payroll system. You will need to set up the accounts, obtain direct deposit information, new Forms W-4, health insurance applications, retirement plans, worker’s compensation, etc.

· Vendors – the prior company probably used some vendors for services different than the ones you use in your company. You will need to visit each vendor agreement to determine which services stay and which must be canceled.

· Customers – this is the time to introduce yourself to each customer. Learn about your new customers, what are their hot buttons? What are their expectations of you? What are your expectations of them?

· Tools – there is probably a server to migrate data from/to. Moving data is relatively simple. Let’s look at the other tools:

· RMM/AV/Filtering – which RMM tool will you keep? Before you blindly answer, “Of course I will keep mine,” consider looking closely at the two and think about your new business. Which tool is more flexible and offers more features?

· PSA/Ticketing – before you start importing your new customers into your RepairShopr to dump the old company’s Autotask, think about your future scalability. Maybe the incoming tools are better suited to help you grow.

 

It may not be the time to use cheap tools because they are cheap. This is a unique opportunity to move to a larger system with little effort. If you stick with cheap tools and migrate the new customers in, you will only have to move them out later as you grow.

 

Keep your eye on the ability to scale. You just purchased a business so you can grow, you want to be sure you can handle that growth.

 

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And so brings an end to our Due Diligence blog series for people looking to purchase an IT firm. This also brings an end to 2015. It’s poetic don’t you think? Smile OK, maybe that’s a bit much. But maybe you’re making plans rights now to purchase a business and expand your empire. If so, the due diligence is exactly what you need to be thinking about.

In summary here’s what we covered and direct links so you can jump right into the section you need when you need it.

Corporate Organization

Corporate Development

Synergies

Marketing and Sales

Customers

Marketing and Distribution

Sales Activity

Culture

Management and Employees

Capacity

Production Processes

Technology

Assets

Liabilities

Profits

Cash Flow

Insurance and Risk

Policies and Procedures

Red Flags

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Performing a thorough due diligence on a potential acquisition is one of the most important tasks that a buyer needs to do when making a purchase decision. When you sign on as a buyer we’ll be sharing the entire document with you but this blog series will help break it down. We’ve put together a list of items that buyers will want to investigate when talking to a seller.

This is part of a large series. Be sure to scan our Buyers Blog for the category Due Diligence.

Now we’re moving on into the final bits and pieces of Due Diligence, the Red Flags.

Red Flag Events

– Has an accountant or auditor resigned within the past three years?

– Is there evidence of continual changes in accounting methods?

– Are there unusually complex business arrangements that do not appear to have a business purpose?

– Is the company continually exceeding its loan covenant targets by very small amounts?

– Do any of the principals have criminal records?

– Are a large proportion of monthly sales completed during the last few days of each month?

– Has the company tried to sell itself in the past and failed?

– Has the company received major warnings from regulatory agencies?

– Does the company appear to manipulate reserve accounts in order to smooth or enhance its reported earnings?

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Do you know what your business is worth? Find out quickly with our online business valuation tool. No strings attached! https://www.sellmymsp.com

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Performing a thorough due diligence on a potential acquisition is one of the most important tasks that a buyer needs to do when making a purchase decision. When you sign on as a buyer we’ll be sharing the entire document with you but this blog series will help break it down. We’ve put together a list of items that buyers will want to investigate when talking to a seller.

This is part of a large series. Be sure to scan our Buyers Blog for the category Due Diligence.

Now we’re moving on into the final bits and pieces of Due Diligence, the policies and procedure that weren’t surfaced in the previous sections.

Policies and Procedures

– Obtain the accounting policies and procedures manual.

– Review all key accounting policies to ensure that they comply with generally accepted accounting principles.

– Obtain the standard offer letter format, the standard termination letter format, and the employment application form.

– Obtain the human resources policies relating to sexual harassment, background investigations, and drug testing.

– Review internal controls and separation of duties

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Do you know what your business is worth? Find out quickly with our online business valuation tool. No strings attached! https://www.sellmymsp.com

BlogFeed Sellers Blog Twitter Twitter Facebook Facebook LinkedIn LinkedIN

Performing a thorough due diligence on a potential acquisition is one of the most important tasks that a buyer needs to do when making a purchase decision. When you sign on as a buyer we’ll be sharing the entire document with you but this blog series will help break it down. We’ve put together a list of items that buyers will want to investigate when talking to a seller.

This is part of a large series. Be sure to scan our Buyers Blog for the category Due Diligence.

Now we’re moving on into evaluating the Financial Management of your potential acquisition portion of your Due Diligence tasks. The purpose of this section is to discover your risks and the existing insurance coverage.

Insurance & Risk Management

– Does the company have an overall risk mitigation plan that it updates regularly?

– Review all corporate insurance, using a schedule from the company’s insurance agency. If there is material pending litigation, determine the extent of insurance coverage and obtain insurance company confirmation. Note whether insurance terms are for “claims made” or “claims incurred,” as well as the amounts of deductibles.

– Have aggregate insurance amounts been penetrated, or is there is history of coming close to the aggregate totals?

– Have there been substantial premium adjustments in the past?

– To what extent does the company self-insure its activities? Are there uninsured risks that the company does not appear to be aware of or is ignoring?

– Review any key-man insurance and present value calculation.

– Review product liability insurance, including description of claims history.

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Do you know what your business is worth? Find out quickly with our online business valuation tool. No strings attached! https://www.sellmymsp.com

BlogFeed Sellers Blog Twitter Twitter Facebook Facebook LinkedIn LinkedIN

Performing a thorough due diligence on a potential acquisition is one of the most important tasks that a buyer needs to do when making a purchase decision. When you sign on as a buyer we’ll be sharing the entire document with you but this blog series will help break it down. We’ve put together a list of items that buyers will want to investigate when talking to a seller.

This is part of a large series. Be sure to scan our Buyers Blog for the category Due Diligence.

Now we’re moving on into evaluating the Financial Management of your potential acquisition portion of your Due Diligence tasks. The purpose of this section is to discover the Flow of Money of the company.

Cash Flow

– Construct a cash flow forecast for the next six months. Will the company spin off or absorb cash?

– Review the trend line of work capital for the past year. How is it changing in relation to total sales?

– Categorize working capital by line of business. What parts of the business are absorbing the most cash?

– Determine historical and projected capital expenditure requirements. Does the company have enough cash to pay for its capital investment needs?

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Do you know what your business is worth? Find out quickly with our online business valuation tool. No strings attached! https://www.sellmymsp.com

BlogFeed Sellers Blog Twitter Twitter Facebook Facebook LinkedIn LinkedIN

Performing a thorough due diligence on a potential acquisition is one of the most important tasks that a buyer needs to do when making a purchase decision. When you sign on as a buyer we’ll be sharing the entire document with you but this blog series will help break it down. We’ve put together a list of items that buyers will want to investigate when talking to a seller.

This is part of a large series. Be sure to scan our Buyers Blog for the category Due Diligence.

Now we’re moving on into evaluating the Financial Management of your potential acquisition portion of your Due Diligence tasks. The purpose of this section is to discover historical and potential profits of the company.

Profitability

– Obtain annual financial statements for the last three years.

– Obtain monthly financial statements for the current year.

– Obtain copies of federal tax returns for the last three years.

– Determine profitability by service line, customer, and segment.

– What is direct materials expense as a percentage of revenue?

– How have revenues, costs, and profits been trending for the past three years?

– How many staff is directly traceable to the servicing of specific customer accounts?

– Are there any delayed expenses? Has the company avoided necessary maintenance expenditures or wage increases in order to boost profitability?

– Has the company capitalized a disproportionate amount of expenses?

– Obtain the budgets for the past three years. Does the company routinely achieve its budgets, or does it fall short?

– Obtain budget projections or business plans for the Business and the Company and review with Company officials to determine any material changes in the financial position of the Business and the Company and compare past budgets and projections with actual experience in order to assess the accuracy of management estimates.

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Do you know what your business is worth? Find out quickly with our online business valuation tool. No strings attached! https://www.sellmymsp.com

BlogFeed Sellers Blog Twitter Twitter Facebook Facebook LinkedIn LinkedIN

Performing a thorough due diligence on a potential acquisition is one of the most important tasks that a buyer needs to do when making a purchase decision. When you sign on as a buyer we’ll be sharing the entire document with you but this blog series will help break it down. We’ve put together a list of items that buyers will want to investigate when talking to a seller.

This is part of a large series. Be sure to scan our Buyers Blog for the category Due Diligence.

Now we’re moving on into evaluating the Financial Management of your potential acquisition portion of your Due Diligence tasks. The purpose of this section is to discover the Liabilities that the company carries.

Liabilities

– Review the current accounts payable listing.

– Obtain a list of all accounts payable to employees.

– Review the terms of any lines of credit.

– Review the amount and terms of any other debt agreements. Review covenants in the debt agreements, and determine if the company has breached the covenants in the past, or is likely to do so in the near future.

– Look for unrecorded debt.

– Verify wage and tax remittances to all government entities, and that there are no unpaid amounts.

– Review the sufficiency of accruals for wages, vacation time, legal expenses, insurance, property taxes, and commissions.

_____

Do you know what your business is worth? Find out quickly with our online business valuation tool. No strings attached! https://www.sellmymsp.com

BlogFeed Sellers Blog Twitter Twitter Facebook Facebook LinkedIn LinkedIN

Performing a thorough due diligence on a potential acquisition is one of the most important tasks that a buyer needs to do when making a purchase decision. When you sign on as a buyer we’ll be sharing the entire document with you but this blog series will help break it down. We’ve put together a list of items that buyers will want to investigate when talking to a seller.

This is part of a large series. Be sure to scan our Buyers Blog for the category Due Diligence.

Now we’re moving on into evaluating the Financial Management of your potential acquisition portion of your Due Diligence tasks. The purpose of this section is to discover the Assets of the company.

Assets

– Verify bank reconciliations for all bank accounts harboring significant cash balances.

– Obtain current detail of accounts receivable.

– Determine the days of receivables outstanding and the probable amount of bad debt.

– Obtain a list of all accounts and notes receivable from employees.

– Obtain a list of all inventory items, and discuss the obsolescence reserve. Determine the valuation method used.

– Obtain the current fixed asset listing, as well as depreciation calculations.

– Obtain an itemized list of all assets that are not receivables or fixed assets.

– Ascertain the existence of any liens against company assets.

– Obtain any maintenance agreements on company equipment.

– Is there an upcoming need to replace assets?

– Discuss whether there are any plans to close, relocate, or expand any facilities.

– Itemize all capitalized research and development or software development expenses.

– Determine the value of any net operating loss carry forward assets.

– Obtain list of intangible assets including amortization schedules

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Do you know what your business is worth? Find out quickly with our online business valuation tool. No strings attached! https://www.sellmymsp.com

BlogFeed Sellers Blog Twitter Twitter Facebook Facebook LinkedIn LinkedIN

Performing a thorough due diligence on a potential acquisition is one of the most important tasks that a buyer needs to do when making a purchase decision. When you sign on as a buyer we’ll be sharing the entire document with you but this blog series will help break it down. We’ve put together a list of items that buyers will want to investigate when talking to a seller.

This is part of a large series. Be sure to scan our Buyers Blog for the category Due Diligence.

Now we’re moving on into evaluating the Operations Management of your potential acquisition portion of your Due Diligence tasks. The purpose of this section is to understand the Technology in use and how it is different and similar to your existing business culture.

Technology

– What systems use third-party software, and which ones use custom-built solutions? Are the third-party systems under maintenance contracts, and are the most recent versions installed?

– To what degree have third-party systems been modified? Have they been so altered that they can no longer be upgraded?

– What is the level of difficulty anticipated to integrate the company’s databases into the buyer’s systems?

– Are there adequate backup systems in place with offsite storage, both for the corporate-level databases and for individual computers?

– What is the level of security required for access to the company’s servers?

– What security measures are in place to protect data?

– What backup systems are used?

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Do you know what your business is worth? Find out quickly with our online business valuation tool. No strings attached! https://www.sellmymsp.com

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