Due Diligence: Financial Management–Cash Flow

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. 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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