Due Diligence: Financial Management–Liabilities

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 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.

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