There may be so many things that are not known to the buyer when he or she is eyeing a company for purchase. It is the same case when companies are looking for mergers or partnerships. They must know what is not openly known. There may be future risks from liabilities. There may be unknown factors that can become a liability on the business that you are planning to buy. This is necessary not just when someone is buying a company but also when someone is planning to lend money to a company. Buyers and lenders usually focus on the available financial data and the prospects of the company. But they must have more widespread information about the financial status and know the risks involved. They must know how the company is being governed and the reporting of financial status is done. For this purpose, it is better to use the financial due diligence services in Singapore provided by consultants who are experts in the field.
Financial due diligence is done when there is a merger or acquisition. It is a process done to ascertain whether the information that is declared by the other party is true. It is a process to verify all the information provided during the discussions for a purchase or merger of a company. It is done to make sure that all the facts given in the financial statements are true and that there are no unknown future risks. This is done before the process of purchase or merger is complete to ensure that the buyer gets what he has been promised.
Due diligence enhances the value of information that is available to the buyer. When due diligence is done the deal is expected to be more successful as the information available allows the parties to take a more informed decision. For the buyers, it reaffirms the expectations that he or she has about the purchase. Performing due diligence also helps sellers. Doing this can bring out facts that were previously not known, which might point to the fact that the value of the company is higher than what was thought. This can benefit from getting a higher price for the company.
The information that is sought from financial due diligence is many and it helps to assess the company better. The first thing to check is whether the financial statements are audited. Audited financial statements have better credibility. The experts can read the financial statements and understand what it says about the company and its financial position. It is also checked whether the profit margins of the company are on the rise or the decline. It is also analyzed whether the future projections given by the company are realistic and achievable.
The performers of the due diligence will find out the amount of working capital that is required to operate the company in the present situation. The number of capital expenses and investments are analyzed. It is also checked whether any loans are outstanding and under what terms they were taken. They also check whether the company can pay the expenses for the present transaction that is planned. It must also be checked whether there is any unusual revenue recognition mentioned in the reports.
While conducting due diligence other facts regarding the company are also checked. It must be first checked why the company is being sold. The buyer must understand whether there have been previous attempts to sell the company and why the deal did not go through. The agency must check what the company’s long-term goals and business plans are. The complexity of the company is another important matter. Are the products and services offered by the company very difficult to manage? Does the company have many subsidiaries? It must be found whether the company has acquired or merged with another company.
The importance of tax due diligence is perhaps overlooked by many buyers who focus only on the financial aspects of a company. But with tax being a major part of a company’s financial burden, it is necessary to assess the tax burden of the company and whether any taxes have not been paid and may come as a surprise along with a penalty. The tax due diligence is not meant to find out small mistakes that may have occurred when calculating tax. This goes into various kinds of taxes that apply to the company and may have been concealed by the company when the deal is being discussed.
There are various types of taxes a company has to pay. This will include personal income taxes of the employees, property tax, withholding tax, GST, etc. There can also be transfer pricing issues that may crop up later. The tax due diligence will include reading all the tax returns which have been filed to see if everything has been filed correctly. It will also be checked whether there has been an ownership change and any taxes are pending from the previous ownership. It will also be assessed whether there will be a difference in the tax liabilities once the merger takes place.
It must also be checked whether any taxes are pending on unclaimed properties. It should also be found whether any claims have been made for tax credit and that has not been passed by the government. This tax will come as a liability in the future. It is essential to conduct tax due diligence so that the buyer is not burdened with tax and penalty for mistakes committed in the past.
It is not just performed by the buyer. Due diligence is also performed on the buyer by the seller to assess whether the buyer can complete the transaction once it has been started or whether the buying company is not strong enough to complete the purchase. This information is also vital for the selling company.