Thinking of buying or investing in a business

Operational Due DiligenceThinking of buying or investing in a business.  Think twice.   Buying or investing in a business is risky, or better yet get help collecting and analyzing the data necessary to try and minimize your risk.

The next consideration is completing a comprehensive operational due diligence in a cost effective manner.  However an inadequate diligence can be a costly mistake. The diligence process in itself will be disruptive to the business and can change the future trajectory of a business in a negative way.

Hiring a big firm comes with a big price tag one many smaller companies cannot afford.  Using your banks team may seem like a good idea but they have a vested interest in closing a deal.

Operational Due Diligence, in one form, is a research process to conduct a thorough review of a business.  In many time the focus is on the compliance and audit aspects of the financials of the business.  However there are many other areas that can make or break a the success of a business the need to be researched in detail to get a full view of the business and be able to assess its viability longer term.

There are many over looked risk factors and the ability to make changes in other areas operationally is often under estimated.

  • multi-jurisdictional regulatory coordination
  • organizational nesting
  • vaporware
  • strength of strategic alliances
  • strength of sales relationships
  • hidden fees
  • inadequate insurance policies

Most people tend to focus on the financial and legal aspects of a target company.  However the life blood of the company is growth in sales and the ability of marketing to create demand in an ever changing environment.  Some of the most important deliverable of a due diligence is a determination of whether you can improve Marketing and Sales operations to create additional value. Using Sales and Marketing Subject Matter Experts (SMEs) from the industry is an important aspect of a successful diligence.

An unbiased review of the target company’s sales and marketing process and methodologies will verify the accuracy of the go forward business plan, and whether it is achievable within the constraints of the capital and operational expense plans.