Due diligence . How to conduct due diligence
When buying a ready business is extremely important to conduct a thorough inspection, because the majority of disappointed buyers business note that they bought a business on emotions, trusting in the words of the seller, and not thoroughly check the purchase item.
It should be noted that sellers of a business almost always lowers the cost of business by at least 10% after a thorough audit.
In world practice, the due diligence procedure preceding the conclusion of the overwhelming majority of contracts for sale of business. Usually the check is conducted by an independent company that according to the results of their activities are reported. Displayed in the report information on the state of Affairs for sale, the company allows stakeholders to reduce the negotiations faster and to reach an understanding.
Why should you trust «MK Audit»? What are the benefits?
- Unlike most companies we have a vast experience of review, and maintenance of purchase and sales of companies,
- We have written a number of publications on the subject of the sale and purchase of business, in which he described the intricacies of this process,
- You’ll buy a proven business (not the cat in the bag)
- You will know all the loopholes of the business being purchased,
- You buy the business at a discounted price,
- We will help for a smooth transition of the business to a new buyer,
- We will find hidden obligations that could hide sellers,
- We will prepare the contract for sale which will protect you from potential tax penalties that may be imposed for the period of seller’s activity.
Audit of business that holds our accounting firm, includes the following steps:
- Legal audit. At this stage we check:
- the correctness of constituent documents, patents, licenses, permissions for execution of works and compliance with the documentation requirements of the legislation;
- the company’s rights to use the trademark licenses, copyright;
- rights to buildings, constructions, equipment;
- the rights of members of the company on the respective shares and assets of the company, the right to alienate.
In the course of legal audit we assess the likelihood of litigation associated with the activities of the company.
- Inventory of property, assets and liabilities of the company being sold.
- During the audit, we will verify the physical existence of the property of the company, confirmed the existence of the assets and liabilities of the company.
- Audit Tax and accounting
- During the inspection we do a thorough audit of the taxation, which will allow you to find all the mistakes that allowed the company sold.
- We do check on a carefully designed plan of tax audit and most importantly our staff conducted over one hundred such inspections.
Allows to identify its main objectives, to diagnose the quality of work and to evaluate the risks associated with payroll regulatory tax authorities of fines.
- According to the results of tax audit conducted by his experts we make recommendations that can reduce the risks during the transaction to a minimum.
- Prepare legally correct documents to buy the business
We will prepare a proper contract of sale of business, in which we stipulate all the conditions of transfer of ownership and protection of the rights of the buyer. At this stage we will provide real help to avoid the requirements of supervisors and contractors to new business owners.
- Independent assessment of the real value of the business.
This independent and objective evaluation is performed with the use of modern economic and analytical models that allow to determine the true value of the company, its competitiveness and profitability.
Why do you need DueDiligence service?
Today in Ukraine is not yet an established practice of selling and purchasing of businesses. The legislative side of the issue also leaves much to be desired. Therefore, in order to properly assess the legal, accounting, economic and tax aspects of the proposed transaction, it is necessary to use the services of competent professionals. Proper procedure will allow due diligence to adequately assess the real cost of business that you plan to buy, its profitability and prospects. Important are also social and psychological aspects of the transaction, which is often neglected.
Why should You work with «MK Audit» ?
- The cost of audit of the business being purchased to help get a great discount on the price of the business. Thus You return your money on the audit.
- Our quality work is confirmed by feedback from our Customers
- Our high quality work and reputation has enabled us to become a partner of the international Association of auditors and lawyers DFKinternational, which operates in 100 countries, for over 50 years, www.dfk.com
- You acquire the reputation of a serious company, interests which defend and protect the professional auditors and lawyers.
- You will be working with a truly professional auditors and lawyers. Our experts have first-class Supreme audit and legal education National University named by T.Shevchenko.
We are unlike other companies have a real experience of auditing businesses. Below examples of our work that have helped our clients not to lose money:
Example 1. Acquisition of a retail dealer network.
Conducting audit of the business being purchased, we found the hidden commitments that hid the seller (one of the founders issued for sale, the company is a guarantor on a personal loan, which amounted to $1 million for 10 years, the interest rate on the loan is 22% per annum). After reading this information our client is a foreign buyer immediately reneged on the deal.
Example 2. The acquisition of 50% interest of big business associated with the operations of import-export.
Audit, during which they performed a financial analysis of the company’s activities, business valuation and tax audit, identified financial risks, the size of which amounted to about 3 million euros. The cost of the company amounted to minus 2.2 million euros. This was due to inefficient management, fraud officials and high credits. In the end, the foreign buyer not only bought the alleged 50% share but sold his share and withdrew from this business.
Example 3. Acquisition of woodworking complex.
Conducted by our auditors due diligence procedure for sale of woodworking complex showed that the sellers have entered the buyers in confusion about his ownership of the land on which the plant is built. The test showed that actually the vendors just rent the land, not own it, in addition, the lease has long expired. The refusal of local authorities to extend the lease was due to the fact that the relationship of the seller with them were hopelessly ruined. In the end, the potential buyer refused to unreliable deals.
Example 4. Acquisition of a company that sells imported agricultural machinery.
At one stage of pre-sale audit (due diligence) we have conducted and sudden for sellers the inventory of fixed assets. It turned out that two expensive combine, which was listed on the company’s balance sheet had long since been sold. In addition, it was found that the part of the company’s fleet also prepared for sale, and have even written out the General power of attorney. The potential buyer refused the deal.
Of course, not all sellers offer unfair trades. Analysis of successful development of major international companies and corporations shows that their development and capitalization were largely due to the successful acquisition of ready business. It is pre-sale inspection conducted by a competent, independent experts helps to choose a quality of a successful transaction and to reject offers of scams. In addition, the results of the inspection allow the buyer to reasonably achieve a significant reduction of the stated purchaser prices.
The “MK Audit” team consists of auditors, lawyers in commercial, corporate and employment law, appraisers and other professionals.
<р3>”MC Audit” recommends to its Customers the steps to audit ready business that help to buy a decent company:
- Check the reputation of the target company;
- To make the valuation of the company (maybe it’s cheaper to do business from the ground up);
- To analyze the market niche the company’s goals, its competitive advantages;
- Verify tax risks for three years (the Statute of limitations for taxes);
- To do a legal audit of all important documents and the rights of the target company (statutory documents, law on trademarks, law on land, buildings, etc.);
- To conduct an inventory of assets;
- Search for hidden debt, the surety who may not be part of the formal statements of the target company;
- To determine all possible claims, courts, actions against the company, after your purchase, and take steps to minimise Your risk;
- To conclude employment contracts with key employees for a long period;
- To identify the buyer responsible for the purchase and the merger;
- To prepare draft contract of sale that protects You as a buyer from many risks;
- To discuss the process of withdrawal of owners from management.
Monitoring auditors, the customers who came to purchase seriously and carefully, using pre-test, could result in lower prices for the purchase of target companies up to 50% of their original value.
The result of our work:
- You will receive a confidential report on the situation in the acquired company,
- You will receive audit and legal support of transactions to buy the company,
- You will reduce your risks associated with buying companies with hidden liabilities, You will gain a reputation as a serious company, which espouses professional lawyers and auditors.
- You will save money by purchasing the company at a price below the initial.
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