Due Diligence in Business Acquisition - Part 2: Financial Due Diligence

Just as a test drive and an examination of the vehicle papers are part of buying a car, due diligence is necessary in the context of a company purchase. This is what the thorough examination of a company up for sale by the potential buyer is called. Today we will go into more detail about financial due diligence.

Financial Due Diligence (Financial Due Diligence)

Financial due diligence is conducted to learn more about the financial circumstances of the company to be acquired. If the company to be acquired is an SME, which are normally not listed and therefore do not have a clear price, the results of the financial due diligence are also particularly influential in the negotiations of the purchase price. Besides the buyer, the financing bank also has a great interest in a careful examination, as for them, the knowledge of financial opportunities and risks is crucial for the loan provision. Therefore, the bank should also be involved, at least in the question of what financial metrics it needs regarding the financial due diligence.

The financial circumstances of the last three to five fiscal years of the company are analyzed. With a view to the asset, earnings, and financial situation and the current corporate planning, a forecast of future earnings is developed. In particular, an examination and forecast of the asset and debt situation, expenses and income, cash flow and liquidity are conducted. For this, it is advisable to employ the services of an experienced auditor. In the next post of our series "Due Diligence in Company Acquisition," we will explain what to look out for in operational due diligence.

Findea is happy to assist you in conducting due diligence.

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