When selling or buying a company, one must know the real value of the company, its life expectancy if it is in the red, its development capacities, if it is still able to develop or not, i.e. if it is at the maximum of its capacity and if it functions in an optimal way. It is also necessary to verify the morality of the transferring managers or the sincerity of the company’s accounts. There are many elements to take into account and it is necessary to take the time to check them carefully, because the purchase of a company or a business is a long-term investment.
To have all this information, it is necessary to call upon external auditors and to make what is called an acquisition audit.
What is an acquisition audit?
An acquisition audit, or “due diligence”, is a step that should not be neglected when selling or taking over a business. It is important not to neglect this step, because thanks to this step, one can verify beforehand the value of the acquisition price of the company or business.
This audit is structured in several steps.
First, a stage called pre-diagnosis, which consists of verifying the positioning of the company and its products on the market. To see if it is possible to expand, and if the capacity: human resources – production is at its maximum or optimal.
Then there is the transfer phase, which includes first of all a risk analysis. This analysis is done by looking at the products or services offered. An evaluation of the competitive market as well as the market shares that the company should have.
At the same time, in the transfer phase, an accounting and financial evaluation must be done in parallel in order to verify the morality of the company. Here a chartered accountant is mandated and the annual accounts of the company are crumbled and analyzed.
Why the acquisition audit is important
To do this audit is very important, first of all because the investment is big. Secondly, many risk areas are only visible after this careful examination. Indeed, even if the accounts that the managers have given to the future buyers are sincere, it is possible that several things escape the vigilance and this due to their complexities. We can quote as example, the taxation, the system of credit, loan and overdraft, the various titles of the bank credits contracted by the company or the trade, as well as the evaluation of the intangible assets (and liabilities).