What Do Financial Due Diligence Consultants Do?
A Financial Due Diligence consultant investigates and analyzes business finances to determine the reasons behind the reported profits and cash flows in order to define the future health of the business. He understands that a potential investor needs to understand the financial implications beyond audited financial statements. He helps to identify potential risks and determine how a sell/buy transaction will benefit the buyer.
The consultant knows that the numbers behind the financial statements are just a basis for further analysis that unleashes company future revenues and expenses, as well as the growth potential. The consultant helps related parties to identify financial risks that the financial statements do not disclose. He also helps companies through the transition process.
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Why Hire Financial Due Diligence Consultants?
Let’s assume an investor wants to buy another company or an asset, or the shares of a company. The seller company normally has financial records that give a historical picture of the financial operations. However, the picture does not address other key issues such as understanding the underlying potential risks as well as determination of financial value drivers. If you are into an acquisition, you need expert advice on the following:
- Financial records describe historical happenings in relation to revenues and expenses, financial position, and cash flows. They may not show an in-depth report of the company's financial health. The due diligence report helps the seller fully understand the business potential and helps him to retain control of the sale process, and the sales price.
- Considering a purchase, you need an expert that will walk you through the sale process. If you are the seller, you want to get a better price for the business, yet if you are the buyer, you need to get a fair deal in the purchase. The financial due diligence report gives insights and unearths possible future cash flows to help the buyer make informed judgment.
- As a buyer, you need to have the confidence that you have a controlling hand in the sale process in order to minimize transitional disruption. The expert helps you save time by controlling the process and pre-plan to manage the transition.
- While historical audited accounting records help in showing the financial performance of the business, some credibility facts are normally undisclosed. The consultant helps to point out well-guarded secrets that would pose a risk to business performance and affect the price. By using other evaluation methods, the consultant performs trend analyses and interviews key employees in order to get a handle on the transition process.
- As a potential buyer, you want to understand the relationship between the profit and loss figures and determine whether they represent a sustainable future. Other factors outside the financial statements may affect future earnings. Historical data may not provide this information. So, the due diligence report discloses the relationship between current earnings and future earnings.
- An understanding of the underlying numbers in the audited financial statements helps in knowing where the company has been, and what it has gone through. This however leaves out an in-depth picture of the trends. The due diligence expert helps in analyzing the trends and determines forecast income and expenditure and cash flows. This helps to reduce the risk of uncertainty.
- Related parties in an acquisition should understand that the sale transaction would affect all spheres of normal business operations. Another important aspect is the issue of the human resources transition process. The buyer needs to have insight about retention of some talent, or not. The expert helps to work out a transition plan concerning current employees. In order to have a smooth transition process that minimizes disruption, the buyer needs an objective report concerning employees’ contracts and compensation policies.
At Consultport, we provide you with a pool of hand-picked pre-vetted top-tier consultants to match your Financial Due Diligence needs.
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