March 1, 2017

When is diligence due?

The words due diligence are often met with gritted teeth and an expectation of exorbitant cost and/or lengthy delays; but that need not be the case. Due diligence can take many forms; from the swift perusal of financial statements through to an in-depth analysis of various facets of the business, including documented processes, industry benchmarks, cash-flow forecasts, SWOT analysis and asset values. 

In most instances, businesses are bought and sold without any due diligence reviews. When considering the rate of failure in small to medium businesses in Australia, a practical investor would seek some level of assurance that they are getting what they paid for.

Before any work begins it is important to know why the due diligence exercise is being undertaken. Is it being done by a purchaser prior to completing a transaction? Is it being done by a prospective seller looking to prepare the business for the market to maximise the sales price? Perhaps it is for the purposes of securing an investor, growth by acquisition or simply seeking to understand the business and maximising return on investment?

The depth and thoroughness of the examination should always be skewed toward the purpose of the due diligence and the risk appetite of the commissioning party. For a party looking to purchase the emphasis is most likely going to be on whether the purchase price is fair and that they are ‘getting what they are paying for’. A prospective seller undertaking pre-emptive due diligence is looking to differentiate their business from the rest in the market by addressing any issues in the business prior to bringing it to market, thereby increasing its desirability and value. 

The point being: due diligence does not have to be long-winded, difficult and expensive. Instead, due diligence should providing the interested party with expert insight that allows decisive action from a position of knowledge; targeted, swift and accurate. 

Sometimes a full-scale investigation is an excess.  Occasionally, a third party appraisal and awareness of strengths and weaknesses is sufficient assurance given the context of why the due diligence is required in the first place. This can provide a quick delivery and allows for informed decision making.

Brett Goodyer is a Director of SV Partners Forensics. To discuss your needs or the needs of your clients, please contact Brett on 0447 264 224 or brett.goodyer@svp.com.au



Practice Note CM7 –“Expert witnesses in proceedings in the Federal Court of Australia” was revoked, effective October 2016. For all future Expert Witness instructions make sure you reference and attach the new Practice Note, being Practice Note GPN – EXPT “Expert Evidence Practice Note” to ensure that your expert evidence remains admissable

Source: http://www.fedcourt.gov.au/law-and-practice/practice-documents/practice-notes/gpn-expt  

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