When To Avail And What To Expect From Financial Due Diligence Audits
Financial Due Diligence audits are required by both buyers and sellers in acquisitions. Both parties want the assurance that the financial information presented to them by the other party is, indeed, free from material misrepresentations, fair and reliable. The perspective may differ – the buyer wants to avoid paying too little while the seller wants to avoid paying too much – but the audit serves similar purposes.
Situations Calling For Financial Due Diligence Audits
Certain situations call for due diligence audits. First, the company is planning to purchase its competitor in order to gain access to its customer base or to its existing products. You want to strengthen your core business through acquisition but you want to ensure that it meets your risk management goals.
Second, the company is planning to dispose certain units of the business. This can come in two forms, namely, selling the units or carving these out from the organization. In both cases, due diligence is still a must to ensure that the disposal is warranted.
Third, the company is planning an organizational restructuring. This usually affects the cash flow including the profit and cost centers, thus, making a due diligence audit an absolute must. Otherwise, the management can make decisions based on unreliable financial statements, among others.
Fourth, the company is feeling the crunch from financiers to shape up or ship out. This usually arises from the company’s falling profits and ratios, among other financial indicators. You will benefit by way of knowing which aspect of the company is going awry.
Think of it this way: Whenever your company seems to be going downhill in the monetary area, ask for a due diligence audit.
Ways That Financial Due Diligence Auditors Assist Clients
Your company will benefit in many ways including but not limited to:
• Enhancing your understanding of your business as well as the business of your competitors
• Identifying the critical factors for your success
• Providing greater control over your operations
• Securing a fair price for your newly acquired business on the part of the seller and enjoying a bargain on the part of the buyer
• Reducing disruptions to the business during the sale or the reorganization.
Don’t dismiss Financial Due Diligence audits as activities designed during acquisitions only. You will learn many things about your company in the process, which you can then use to make it more profitable.