Chapter 16 - Potential Challenges During the Process
This chapter covers the situations we have learned through hard experiences delay or kill transactions completely. Business sale transactions are time-consuming, expensive and completing them is important (as the owner often has an appointment with the beach!). So making an effort to understand and avoid or mitigate these issues early on can make all the difference.
Poor Books and Records
Poor books and records is one of the main reasons that the due diligence phase ends up with the transaction not continuing. At a high level, the Buyer is buying future cash flow and they need to be able to rely on all the different elements that make up that cash flow. We normally work with 3 years of filed accounts, which the accountant would have prepared, and we expect them to be accurate. We then work with management accounts out of the Seller’s accounting systems since the last filed accounts date (fiscal year). This allows the Buyer to see that the business is on track during the most recent months. So if this basic reporting is not available, it makes it very difficult for a Buyer to get comfortable and almost impossible to get commercial lending.
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