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.
– 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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