- making an offer;
- financial assessment; and
- due diligence.
Making an Offer
This should not be construed as legal advice. Please seek legal advice before making any offer.
The offer should be in writing and clearly state any conditions or requirements for the offer. It should specify what is included in the offer (i.e. stock and equipment) and clearly indicate the proposed settlement date. If your offer is subject to finance approval or Due Diligence, this should also be made clear.
You should only make an offer if you intend to purchase.
This is not a time for frivolity!
Financial Assessment
We strongly recommend that any assessment of the financial performance of the practice is completed by an experienced person with knowledge of the profession or business sector. They should also be independent (do not use the vendor's accountant).
However, ultimately, as the buyer, it is your money. Ensure you personally understand the analysis as well as the underlying business performance.
Financial statements should be assessed against the context of 'why they were prepared?' Often "special purpose" financial statements are prepared and issued for the sale of businesses. While these are often valid reflections of the business results, you should be aware of why and how they were prepared.
It is also highly recommended that you look at more than one year's financial results and examine both the underlying business trends as well as risk and variability. Also seek to understand any accounting treatment or approaches in the notes or the accountant's disclaimer.
Due Diligence
Due diligence is often misunderstood. Again, seek legal advice before commencing any due diligence. Also ensure that you use an independent and expert accountant to complete the due diligence.
Again, our comments here should not be construed as legal advice.
Due diligence means verifying financial and other information by obtaining verifiable and independent evidence which supports or validates the information provided to you during the disclosure process.
At the very least, you should check:
- revenues and income
- key expenses
- leases and equipment
- major contracts (inc. employment contracts)
- all add-backs and adjustments
Due diligence should enable you to confirm that the representations made and information provided to you during the disclosure process, and on which you based your offer, are reasonable and appear correct. It is unlikely that you will be absolutely certain (unless you complete a full audit), but it will give you confidence to proceed.
This is only part of the program covered in the Medici Capital Ownership Ready Workshop. The next program is being held in Melbourne on Tuesday 23rd April & 30th April 2013 (two part evening series). Dates are also scheduled for Sydney and Brisbane.
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