Due Diligence - One Size Does Not Fit All

You just got your letter of intent signed, and the wheels are in motion to move your transaction to closing, but important decisions still need to be made. In particular, you need to pick your transaction team. This team will include company personnel, legal professionals, accounting professionals and insurance professionals, to name a few possibilities. When deciding who to use on your team, it is important to consider who will customize their services to your particular transaction.

Financial diligence should not be based on one standardized checklist or PowerPoint presentation book. Each transaction needs to stand on its own. Upfront planning is the key to delivering effective due diligence. This process should include a detailed review of available information, including financial statements, confidential information memoranda and available public information. In addition, specific risks should be vetted, so the focus is on areas that will ultimately have an impact on the transaction. At this point, a detailed specific financial due diligence plan can be developed and executed.

The one-size-fits-all method may capture all the relevant risks, but does so by carpet bombing instead of laser targeting. This can put stress on the target and ultimately slow down the transaction. Designing a specific approach allows for sufficient effort focused on risk areas. For example, if the target is a manufacturer, risks may involve raw material prices, costing methods and obsolescence. Upfront planning may identify that raw material costs are a large risk to future earnings and costing is not. Therefore, little time is wasted on a non-value-added area. That being said, it is important to adapt on the go to new information. Recalibrating will also bring the most value to the process.

Planning and open communication will always yield the best results with the least amount of stress. 

Please contact Joel Rosenthal, Shareholder, for information on how we can assist you with your due diligence needs.

© 2012 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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