Given that a business’ finances are perhaps the most critical, many prospective buyers will turn to an accountant to help assess the financial condition of the prospective business.
But before beginning the due-diligence process, accountants need to understand the fundamentals of the proposed sale and let the buyer know what resources they’ll need to perform a proper review.
After all, due diligence is the most critical stage in the business sale process. By its very nature, due diligence is designed to both verify information and look for problems. The process involves buyers reviewing all available information related to the business.
Here are a few tips for accountants to help navigate the financial due-diligence process:
1. Budget enough time. Oftentimes, sellers and their brokers will push to close a sale quickly; however, it’s important to not rush the due-diligence process. Accountants should advise their clients to not settle for any less time than you comfortably need to complete a thorough review of the business. While a financial review can be done in a number of days, depending on the size of the business and other aspects of the due-diligence process, owners should budget between two weeks and a month.
2. Request the right documents. Because you and the buyer will likely be working on a scheduled timeline, be sure to let your client know all the materials required to complete the financial review from the start. Do not start the review process until the seller has provided all the requested information. Documents to review include the owner’s benefit (SDE), audited financial statements for three years, analysis of gross margins, accounts receivable, accounts payable, tax returns for the past three years, and the company’s credit report (if available).