Preparing for a successful due diligence transaction

By DTE Business Advisers

14 Oct 2022

Due diligence is an important part of any transaction. The most common type of due diligence is Financial Due Diligence, and the tips below are intended to help you prepare for such a project, making the process as effective and efficient as possible.

Understanding the business

A Financial Due Diligence will generally involve obtaining an overview of the business operations including but not limited to:

Establishing how the company has grown and evolved How management manage and monitor their roles and time Understanding the strategies and objective of the business Profiling the key members of management Gathering insights into the customer base including customer contracts, terms of trade, customer attrition and concentration Routes to market and different types of agreement with customers Understanding any fluctuations in revenue and a company’s revenue recognition policies Pricing strategies Cost profiles Staff costs and organisation structure Inventory management Accounting methods

You should be prepared to answer questions and provide evidence of this information through walkthroughs and supporting documents. By demonstrating confidence and robust responsiveness, you will gain credibility, giving the investor added comfort regarding the quality of the business.

Cash Flow

It is essential to understand how quickly profit turns to cash and the key components of cash generation. Cash is the lifeblood of a business.

Audited financial statements

Many small businesses carry out financial reporting solely for the purpose of filing the annual accounts and tax returns. While a financial audit may seem like a disproportionate and complicated exercise, it can raise the standard of the financial information, thus raising the investor’s confidence.

Cash versus accrual basis

Some businesses, especially some early stage fast growing technology businesses, may use a cash basis of accounting, whereby revenue is recognised when payments are received, and expenses are recorded when paid. Investors, however, want financial statements where revenue is recognised when earned and expenses accrued when obligations are incurred. The accruals basis of accounting gives the buyer a clearer picture of the earnings of the business. A good accountant will ensure that company’s financial reports present potential investors with a clear story.

Get organised

Financial Due Diligence information request lists can be comprehensive and thorough. Advisers performing due diligence will generally request three to four years' worth of information organised monthly. Reports typically requested include:

Statutory and monthly management accounts Integrated forecast models Customer sales data Aged debtor and creditor lists Inventory records Payroll records

Being prepared and responsive will help you to provide third parties with the information necessary to complete due diligence in a timely fashion. Plus, this will provide comfort for an investor. It will therefore help a company position itself for higher valuations, stronger negotiations, and better outcomes.

At DTE Corporate Finance, our Transaction Services team has a great deal of experience providing Financial Due Diligence to companies, banks, private equity houses and private equity backed corporates, as well as other funders for a range of transaction sizes and types.

Due diligence should be a key element in any acquisition or investment process. We work closely with our clients to develop an appropriate scope of investigation that meets their needs. We work hard at ensuring that the format is tailor made for the client and identifies all issues.

To learn more, please contact a member of our team on 0161 819 1910 or [email protected].

Latest news

1

Eurofighter deals secure thousands of jobs Typhoon production in Samlesbury, Lancashire

Eurofighter deals secure thousands of jobs

24 Dec 2024

2

Rospen shares global reach and industry expertise with MP Grant McGeever and Sarah Smith MP

Rospen shares global reach and industry expertise with MP

23 Dec 2024

3

The Flow Group acquires Blackburn based Modern Bookbinders in strategic asset purchase The Flow Group's Richard, Mick and Helen

The Flow Group acquires Blackburn based Modern Bookbinders in strategic asset purchase

23 Dec 2024

4

fulfilmentcrowd reports record-breaking performance LeeThompsonfulfilmentcrowd

fulfilmentcrowd reports record-breaking performance

20 Dec 2024

5

Record year for Grant Thornton Northern deals team The team

Record year for Grant Thornton Northern deals team

20 Dec 2024

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
The Lancashire Festival of Business
FOB 315
Exhibitions
30 Jan 2025

The Lancashire Festival of Business

Impact Conferencing, Burnley, BB12 6QP

09:30 - 16:00

Skills Bootcamp in Procurement - Cohort 3
Blue-Modern-Land-Travel-Youtube-Thumbnail-2-1024x576.png.png
LBV Hub Awards
14 Jan 2025 - 18 Mar 2025

Skills Bootcamp in Procurement - Cohort 3

Community & Business Partners CIC, Blackburn, BB2 3UA

09:30 - 13:00

Preston Tech Connection - January Meet-Up
Nov Preston Tech Connection event banner-4.png.png
LBV Hub Networking
15 Jan 2025 - 15 Jan 2025

Preston Tech Connection - January Meet-Up

Society1 Coworking Space, Preston, PR1 3LT

18:00 - 19:30

R.I.S.E. and Shine
thumbnail_Emma Weston Illustration WENDY BOWERS RISE Illustrstion.jpg.jpg
LBV Hub Seminars
16 Jan 2025 - 16 Jan 2025

R.I.S.E. and Shine

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

08:45 - 11:00

The Business Network Central & East Lancashire
LBV Hub Networking
16 Jan 2025 - 16 Jan 2025

The Business Network Central & East Lancashire

Mytton Fold, Langho, BB6 8AB

11:30 - 14:15

LBV120 Magazine Launch Event
DSC9389
Networking
17 Jan 2025

LBV120 Magazine Launch Event

Lancastrian Suite, Town Hall, Chorley, PR7 1DP

08:30 - 10:30

Red Rose Awards 2025
Red Rose Awards 2025
Awards
13 Mar 2025

Red Rose Awards 2025

Winter Gardens Blackpool

18:00 - 11:59

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV118 Online Graphic
Subscribe now

Weekly news bulletin