Financial Due Diligence
Financial due diligence suggests that the monetary values and circumstances relating to any kind of investment must be keenly looked into by investors and other stake holders before closing any deals. The concept of financial due diligence was born out of the idea that investors ought to be protected from unpredicted losses prior to making or closing any business deals. There has been a paradigm shift over the years relating to the aims and objectives of practicing the financial due diligence. Most experts concur that in the yester years, financial due diligence aimed at only protecting the investors as opposed to the current times where it has risen to be a basic business standard in regards to any kind of investment that has risks included in it.
Financial due diligence seeks to qualify many aspects of the business that include but not limited to: financial performance of a business, relationship between the customers and the business, the products involved among others. In this case, it may take quite a long time before the process is over and as such, all the parties involved should be prepared for the long process. The length of the exercise varies depending on the depth to which due diligence is being performed on a particular investment.
There are various checks that ought to be taken into consideration before the process of financial due diligence kicks off. Assuming that a seller is tasked with the obligation of selling a company, there are several steps that he or she could make to ensure that the process is successfully carried out. Good organization of all the relevant documents, working with the appropriate team, using audited statements, and the provision of all the necessary information are just but some of the steps that can be applied before and during the due diligence process:
- By organizing all the relevant documents, the seller not only portrays a good business practice of the company to the buyer but also increases the probability of the buyer increasing the sale price of the company. Working with the right team ensures that a seller is able to assign a specific person to aid the buyer in the due diligence process and ensuring a smooth process.
- Using audited statements will not only add value to the company but will also go a long way in portraying a positive image for the company.
- Provision of the necessary information ensures that the buyer accesses all the information even that regarding intangible assets such as copyrights and patents. This results to increased buyer confidence that may subsequently lead to an increase in the sale price of the company.
Putting all the above factors into consideration not only eases the financial due diligence process but also leads to an increase of the investor confidence to the company. This leads to positive returns to both the investor and the seller.