Due Diligence: The final pieces. Red Flags

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 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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