Due Diligence


Defined:

“The phrase is composed of two words. Due: which the dictionary defines as ‘Proper or Adequate’ and Diligence: which is defined as ’Degree of care or caution expected of a person, especially as a party to an agreement’. Caution: is the watchword in this definition.”

When investors or buyers find businesses that they are interested in investing in or buying, there are often roadblocks put up by the seller and/or listing broker. They may request an offer before releasing any financial information on the business.


When purchasing a business, it is important to look for what problem(s) the seller is having that he cannot solve. People rarely sell their businesses just to retire. There is almost always some problem they cannot overcome. It may be a physical condition they have or an emotionally upsetting situation, employee problems, legal actions, a profitability issue, or it just might be that the competition is cutting their throat.

 

The job of a buyer or his financial consultant is to find out why a seller really wants to sell. Why does the seller want to sell, this year, rather than five years ago or next year? When you find the answer to the seller’s motivation, you can then determine the true value of the business and the validity of the information you are getting from the seller. You can also then figure out if the problem is fixable; by you or anyone else. If you are just buying the seller's problems, and cannot fix them, you are not going to be successful in that business.


So, what is the number one mistake a buyer makes when buying a business? It is, unfortunately, accepting what the seller tells them as the truth and not doing the necessary due diligence that is required.


 

Business investors or buyers need to collect financials, tax returns, equipment and inventory lists and anything else that is critical to valuing the company. From this information, we raise questions based on the data and information provided. We suggest further research on the business that the buyer should consider doing. We can suggest contingency clauses to put into the offer. We will suggest how to force the seller to pay for due diligence costs if there turns out to be a misrepresentation of information, by the seller. We provide an opinion to the investor or buyer as to the desirability of this business. The opinion will include the benefits and some of the risks of going into this industry or business. We also render an estimate as to its value, based on the data provided. The conversation will end only when the Buyer is satisfied that he learned what he wanted to know.

 

 

Buying a Business - Look again before you leap!


You have spent months finding the right business. The seller says that you cannot go by what the tax return shows but the business is making a lot of money, and he can prove it. Your inspection of the profit and loss statement shows that sales have been increasing slightly in the last few years. Most important, and the best news of all is: the price is right! Watch it now. Look again before you leap!


Many businesses are doing well. Sometimes the owners have personal things going on in their home life. Sometimes they have medical problems. But many times the business is not doing well and the seller is frustrated. It is very common for a seller to work hard to build his business, but because of many reasons, it doesn't produce what the seller wants. He gets frustrated and one day he gives up and wants out. You need to check and check again to make sure you want in.


Certain markets and industries do not provide a transparent business culture. In these situations, companies must select their business acquisitions, investments or partners with particular care. Our due diligence service carries out in-depth research to supplement the available information, enabling our clients to have confidence in their business partners. Our team of professionals research the reputations of individuals and companies, their histories, and their associates. In providing such a comprehensive due diligence service, we enable our clients to avoid the expense of problematic business acquisitions, investments or sale situations.

 

 

Selling a Business - Do you know what the true value is?


Before you sell or exit your business, you will need to evaluate your business revenues, assets, property, etc. A number of other factors will need to be assessed like future potential profit, competitors, intellectual property, and customer base. Buyers will be interested in your business figures and history. We can help you in determining the value of your business. If you need the valuation certified, we can arrange to have that done for you as well.

 

Before you approach potential buyers or investors, you need to have an idea of the value of your business. Prospective investors will also assess its value when they consider your proposal. The process of determining the value is called valuation. You and the buyer or investor need to determine what you feel is an appropriate business valuation because it will be the basis for negotiating:

• How much of your business the investor or buyer will purchase
• How much the buyer or investor will pay (the price of the business or of its shares)
• The return the buyer or investor can expect to earn

 

Business Valuations


Our business valuation practice is built upon the use of traditional valuation methods plus the practical experience of being in the marketplace every day and having worked on hundreds of transactions. Our clients seek our valuation expertise for many different purposes. Business owners who are contemplating the sale of their company need to know what to expect from buyers. The in-depth analysis provided by the valuation can also uncover hidden opportunities to increase value prior to a sale. Valuations are a critical component of a business owner’s personal financial and estate planning efforts. Without a reliable estimate of the value of a business, the assumptions and strategies used in planning for the future may not be accurate. For our clients seeking an acquisition, undertaking a valuation of the target company is also a necessity before developing a purchase proposal.

 

Our business valuation practice is centered around providing our clients with valuations supported by varying levels of reports. Our short-form Valuation Calculation Report can be as limited as a five to ten page written report - often used for initial planning or feasibility purposes. Our comprehensive, full scope valuation reports (i.e., Comprehensive Valuation Report) include significant detail of the various valuation methods used, the relevant issues considered, industry and economic issues, and detailed analysis of the company, etc.

 

We take the following steps to complete your business valuation:

  1. Determine the purpose for the valuation.

  2. Meet with you to develop a clear understanding regarding expectations and deliverables. This includes understanding your views and how you formulate your opinion and estimate as to the business’ value.

  3. Collect and analyze the following company-specific data:

• Company background
• Products and services
• Marketing and distribution
• Competition
• Operations
• Management
• Financial
• Future expectations
• Review industry and economic trends
• Analyze and apply appropriate business valuation methods
• Prepare agreed-upon deliverables
• Meet with you to review the valuation

We endeavour at all times to provide unbiased, and reasonable valuation reports for all of our engagements. We believe in following proven financial and valuation techniques as a standard practice and strive to achieve the highest levels of professionalism in our work.

 

For more information or to get a custom quote, please Call (604) 628-1976 or eMail info@genbussolutions.com

About Us:

Genesis Business Solutions (GBS) provides specialized business and financial planning, marketing and advisory services to small and medium sized businesses in the Lower Mainland. If you want to start or grow a business, we’ll show you how to start making money doing what you’re passionate about. Whether you’re launching a lifestyle business or a global brand, we know how to make your ideas come to life and make sense. We will get to know you, your business and your numbers and help you put your ideas and vision on paper and make your business goals possible. (Find out more)

Genesis Business Solutions
Suite 2300-2850 Shaughnessy Street
Port Coquitlam, B.C. V3C 6K5

eMail Contact info@genbussolutions.com
Telephone Contact (604) 628-1976


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