Business Due Diligence - CapitalQ

Business Due Diligence

When you are buying a business, your Purchase Agreement absolutely MUST have a Due Diligence Clause.

You see you will be making your decision about buying the business based on the representations of the current owner, as well as their Business Broker.

So a Due Diligence is your chance to make sure that everything they have represented to you about the business is true. And it is your chance to dig a little deeper and see if there is anything they haven’t been telling you!

Now we aren’t suggesting most people trying to sell you a business are trying to rip you off. But unfortunately it does happen and you need to do all you can to protect yourself!

Even if they don’t deliberately mean to do the wrong thing, you still need to perform your checks.

You see every business owner will have a better view of their business, and a somewhat inflated opinion of its true value. It is only natural. Usually, they have been involved in it for so long, and they have invested so much of themselves into it, they can’t help but be attached and have slightly less than an objective view of its real worth.

Then there are the business owners who may not actually be particularly good operators. Or at the very least they aren’t fully versed in all their figures and the realities of their business’ performance.

The Due Diligence is your chance to check things out and make sure no one is missing anything.

We perform two forms of Due Diligence.

The first is what is referred to as a “Desktop” Due Diligence. This means we won’t visit the premises and instead will perform a high-level review of documentation provided to us by the current business owner and their Accountant.

A Desktop Due Diligence clearly has its shortcomings, it simply isn’t possible to undertake in-depth analysis and investigations into the business. The purpose of a Desktop Due Diligence is to provide a low to moderate level of confidence about the business, but clearly, there are few assurances able to be provided. It will, however, pick up the most glaring shortcomings if they exist.

The clear benefit of a Desktop Due Diligence is the cost. It will generally be between 25% to 50% of the cost of a Full Due Diligence.

A Full Due Diligence involves time spent on the business premises, in-depth inquiries of the current business owners, inquiries from customers, of suppliers, reviewing of source documentation and transactions. Clearly, it gives the best chance of uncovering any shortcomings. The cost is higher, but the confidence level it can provide, and the losses it may well help you avoid, can make it more than worthwhile. In fact, the return on investment, relative to buying a business that will not be as successful as you hope could be 10, 20 or more times its cost.

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What our customers say

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Duncan Melbin’s firm first became the business accountants for Exploration Data Services, and my Family, when he was still a Graduate Accountant some 16 years ago. Myself and my late business partner have followed him ever since!

In the early days Duncan was very proactive in regards to fine tuning our business structure and the benefits of getting the structure right early are still flowing today.

Throughout my time working with Duncan he has played a key role in ensuring our tax affairs have always been in order and our tax obligations have always been minimised and well managed.

Duncan has also played a key role in ensuring my Family and I have adequate wealth protection in place and that we have maximised our wealth creation including through a regular superannuation contribution strategy and the use of a self-managed super fund that keeps us engaged, in control and to a large extent free from the perils of the GFC.

More recently we took the opportunity to outsource our entire back office accounting function to CapitalQ including switching our accounting and invoicing to Xero. I now spend barely any time at all on my monthly accounting and Activity Statement lodgements, as CapitalQ have it all in hand. This allows me to focus on running my business better, and frankly to have more time to enjoy the spoils of a life in business.

I work closely with Kapil Bhasin, our Client Manager, and Peter Melbin, our outsourced Bookkeeper, and they are clearly very valuable assets for CapitalQ.

Working with Duncan, Kapil and Peter is very easy, they respond promptly to any queries I have and most importantly I have complete trust in the advice they give me and that my business affairs are being well looked after. I would recommend CapitalQ to any potential client without reservation.

So if you own a small business or are looking to grow your wealth I highly recommend you speak to the CapitalQ Team. They will give you good advice, and ensure you are on track for a sound business and financial future (and outsourcing your back office accounting process to them, and switching to Xero, will be two of the best business decisions you will make).

Michael Gray

Director - Exploration Data Services (Perth)

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