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Our Due DIligence Process
BALANCE SHEET
After agreeing a purchase price we need to confirm that the intrinsic value of the assets match the figures in the accounts.
To do this we ask a very simple question:
How much would each specific asset cost to purchase today?
Answering this question involves listing the specific assets included and the researching the separate cost price, on a like for like basis.
For tangible assets (vehicles / plant / machinery / property) we will view them and invite independent valuations from relevant experts.
For liquid assets (cash, investments, loans, debtors) we will review evidence of their current status.
This could include statements, purchase orders, invoices and other documentation.
We follow the same process to assess the value of liabilities. The goal is to ensure full transparency and a fair valuation.
OPERATING BUSINESS
To value an operating business we ask the following questions:
How reliable are revenues going to be in future and how efficient is the business currently?
To answer these questions we look closely at income, costs and team.
We look for revenues to be divided between a large number of separate clients. This helps us assess the risk of revenues fluctuating over time.
We also look at which type of product sales make up the revenues. This helps us assess any uncertainty related to future product demand.
Exploring management accounts, bank statements, and customer contracts assist us with this process.
Next, we look at the team that is responsible for running the business day to day. Ideally, the team should cover all main functions and have clear roles.
The balance of roles and responsibilities helps us assess the stability of the business for the foreseeable future.
The more autonomous and stable the operating business is, the higher the value.
The exception is if it can be successfully merged into an existing business that we already operate.
Throughout the due diligence period we communicate our findings and remain as transparent as possible with our thought process.
We also aim to complete due diligence in less than 30 days, to ensure a decision can be reached as soon as possible.