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The Financial Due Diligence Process

You found a quaint restaurant in Orlando for sale that is exactly what you have been looking for.   But is the restaurant really doing as financially well as the Seller has been claiming?

All you have seen to this point is very basic information and have had a hard time getting more in-depth financial information.  Why is the business broker/seller been reluctant to provide more information?

When a Florida business is for sale the Seller will provide basic financial information in regards to the business to the Orlando Business Broker that is handling the listing, who in return will provide to potential qualified Buyers.  However, the information provided to a Buyer is normally limited until there is a written, executed contract.

It is unrealistic to think a Seller of a business would be willing to be hand out in-depth supporting financial information to every buyer interested in buying their business.  Could you imagine giving private and extremely confidential information to twenty different people?

Once a Florida business for sale goes under contract, is when a buyer will begin his/her financial due diligence.  During this phase, the Buyer should consult with a CPA that specializes in financial due diligence.  The CPA will usually provide a list of items that the Buyer should request from the Seller of the business.

The purchase contract usually specifies that the Buyer needs to submit the financial due diligence within so many days of the contract being executed.  The Seller will gather the materials/documents requested and provide them to the Buyer.

After the documents are received by the Buyer, the Buyer will have an allotted amount of days for the accountant and him/herself to review the materials to determine if the business is performing financially as the Seller had stated.

Depending on what is stated in the purchase contract, the buyer may have different options depending if the business stands up to the financial due diligence or not.  Of course the Buyer may back out of the contract with no loss of deposit if the financial information does not support the Seller’s claims.

It is important that if the due diligence does not hold up to the claims, that the Buyer provide the Seller in writing before the date specifies in the contract that he/she will be canceling the contract because of the outcome of the due diligence.

The below is a sample due diligence list for demonstration purposes only.   The list is provided to give buyers and sellers an idea of what type of information might be asked for during due diligence process of buying or selling a Florida business.  Again this is just n example of a due diligence list.  If you are a buyer of a Florida business for sale, you should consult with your CPA that specializes in due diligence for the list that he/she may require.

Sample List for Due Diligence

(Consult your CPA)

Balance Sheet as of:
5/31/2012
12/31/11
12/31/10

Profit and Loss Statement as of:
5/31/2012
12/31/11
12/31/10

Tax returns:
2011
2010
2009
Accounts Receivables (A/R aging)
A/P aging
Detailed General Ledger , by months
2010
2011
and 2012

2010

 

Bank statements

2009, 2010, 2011, 2012
Staff, the list

 

Copy of 2009 W-3/4 and W-2’s
Asset list
Copy of lease

 

Sales for 2009, 2010, 2011, 2012 by months, by services, by accounts

 

COGS in detail by services, by clients for 2009, 2010 and 2011, 2012
Corporate books

Jim Parker

James Parker
President/Business Broker
Lic. Real Estate Broker

Dear Fellow Entrepreneur or Aspiring Business Owner:

On behalf of everyone at Boss Group International, I would like to thank you for visiting us. We have provided a wealth of information on our website so you can better understand the process of buying or selling a Florida business.

 

You may want to see what businesses are currently for sale in Florida. We have provided you a direct link to the database of businesses for sale that professional Florida business brokers use to search for their buyers. Please take a look at this incredible database.

 

If you are interested in buying or selling a Florida business, contact us today so we can discuss the possibilities. As professional Florida business brokers, our conversation will remain confidential.

 

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