Financial Due Diligence

As the name suggests, Financial due diligence (FDD) refers to undertaking a task with some degree of care and attention.

In all likelihood, financial due diligence is the most significant step in your business acquisition path. It provides an understanding of accounting matters and financial records that helps you determine your business’s true value. Due diligence is a comprehensive financial assessment performed by a potential investor to investigate a business opportunity and verify its value. The purpose is not to test the accuracy of financial statements, but to understand the company’s underlying risk and profit potential.

In short- a detailed financial risk assessment of an investment opportunity over a short period of time. It is not a compliance exercise, but an investigation of the opportunities the business can offer. A financial diligence review is also a cross-functional exercise that should be completed by an investor, prospective. It can require from a few minutes to several months depending on the complexity of the issue.

During the process of financial due diligence, our team of experts examine a company’s accounting data to ensure that it is reported accurately and fairly. Doing so helps you understand the health of the business on both an operational and financial level. It can identify possible inefficiencies or exaggerations in the accounting records as well as potential issues or concerns with the management team. Due diligence can also help determine your exit strategy if a company is facing serious financial problems, preventing you from being caught unawares by any major surprises.

Financial Due Diligence: Why Does It Matter?

Any business investment, whether it’s in a startup, a new product line, or a merger, should involve financial due diligence. It is the analysis of an organization’s financial information by an outside party to confirm its accuracy and provide investors with insight into the company’s current operations.

Hereby an investor can ensure they have all the necessary information to make an informed decision. When buying or selling a company, it’s critical to understand the company’s financials—both good and bad. The “bad” things can often be harder to spot, especially if they’re the result of fraud or poor bookkeeping.

That’s why it’s so important to conduct financial due diligence before moving forward with your investment. This will help you identify overstatements in profit, fixed assets, receivables, inventory, and other areas that could cause you serious losses down the road.

Financial due diligence also helps you:

  • Assess the current management’s ability to maintain financials.
  • Understand any outstanding balance sheet liabilities, such as taxes due and accounts payable.
  • Spot vendor/supply chain or key customer concentration risks.
  • Gain insights into potential revenue declines or major expenses that might be on the horizon.

With this information in hand, you’ll be better able to determine a clear valuation for your potential investment and set a working capital target that makes sense for your business needs.

Our financial due diligence services –

We will be conducting a 360-degree financial due diligence process at the end of which you will have actionable insights to successful close a deal. We will provide you with a a due diligence report which includes major risks identified, corrected financials, forward projections, and recommendations This is more than what an audit report provides, including forward-looking projections and management concerns which can inform your strategic business plan. Our financial diligence team will hold a consultation meeting with you to explain findings in detail and answer your questions. The overall financial due diligence process we carry out will serve the below purposes –

  • Understanding the key drivers of business
  • Analyzing and assessing the accounting policies and processes in place.
  • Review and sample financial records like invoices, receipts etc.
  • Assessing control procedures to identify gaps and suggest corrective method.
  • Forecast and estimate future revenues, cashflow etc. and overall future financial performance.
  • Identify and correct previous financials.
  • Estimate a working capital target if and when applicable.
  • Clear insights into strengths and limitations of the organization being purchased

In what ways will our Financial Due Diligence services directly benefit you and your company?

Quicker Deal Closures

Our Due Diligence services are designed to help you navigate the complex waters of deal negotiations and close deals faster. It can also enable you to distinguish genuine risks from mere negotiation opportunities.

Investor Assurance and confidence

While many parts of the due diligence process can be handled by you, the buyer, there are times when it makes sense to hire a professional. An unbiased third-party professional can give investors reassurance about the health of the organization’s finances and how reliable the financials are. It gives ample amount of confidence to your investors.

Negotiate based on facts

We help you determine what the company is actually worth, which will enable you to negotiate the best deal based on facts. You can also steer clear of deceptive accounting statements that may cost you major losses. you can rest assured that we will spot and report any errors or misleading statements on any risks, so you can be confident in your decision to acquire or invest in a company.

‘’We build a bespoke service for our clients. Whether they want to advance an idea, a capability, or the world at large, MS is with you every step of the way.”

Mohammed Shafeek

Founder & CEO, MS