MLR

Category: Due Diligence

Accounting for Business

Welcome to our Resources section, where you will find articles pertaining to accounting for business, business financial planning, financial advice, and the industries of our clients.
This section is a great source of information, but please contact us if you feel you need professional financial advice. Maxwell Locke & Ritter is here to offer trusted guidance.

The standard financial due diligence process focuses on providing potential investors with an understanding of a company’s sustainable EBITDA, historical operating trends, working capital needs, and accounting policies and procedures.

However, access to the C-suite during fieldwork allows a financial diligence provider to gain valuable insight into other aspects of a company’s operations that may be just as important when evaluating a deal. In particular, financial diligence teams may uncover significant issues affecting post-acquisition integration and the investor’s ability to effectively monitor and effect change post-transaction.

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Comprehensive due diligence is essential if your business plans to acquire or merge with another organization. Without one, complicated implications could arise with the potential to significantly affect the profits or viability of the transaction.

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The IRS has an Employee Plans Team Audit (EPTA) program to enforce the tax rules for employee benefit programs in large companies. According to the tax agency, one of the top ten concerns of this group of auditors is how mergers and acquisitions affect compliance with employee benefit rules. Recurring or uncorrected compliance failures can lead to tax penalties or worse — such as outright disqualification of tax-favored employee retirement and benefit programs.

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It may seem odd, but as soon as you start up a business, you should begin preparing the documentation needed to sell or merge with another enterprise. It may be years down the road but the records often required in today’s M&A environment can be overwhelming. If your recordkeeping has been shoddy, it can be difficult or impossible to compile the information wanted by a potential buyer or partner.

In the context of mergers and acquisitions, potential investors get a level of assurance when the investment target is audited.  However, relying solely on the target’s audited financial statements when making an investment decision could be shortsighted.