Our friends at Hellam Varon reminded us the other day that knowledge applied through best practices will provide the best opportunity for you to generate value in your company. In this case, Hellam Varon reminds us of the value of a CPA’s role in due diligence.

At Sage we believe in a team approach that can help design and execute a ‘Path to Value™. Sage can provide the design, approach and execution as well as place valuable knowledge agents on the team. In this example, a subject matter expert like Hellam Varon would be critical to the due diligence process.

Here is their newsletter reminder to their clients for your enjoyment:

You wouldn't perform a surgery on yourself.

The same holds true when buying a business. Unless you're well-versed in performing a comprehensive financial analysis of a business, it doesn't make sense to buy one without using a due diligence and valuation specialist. A due diligence report:

•  Verifies the accuracy of the seller's information.
•  Outlines a detailed understanding of the business.
•  Contains vital information that can be used for negotiating the transaction, obtaining financing, establishing the tax and accounting basis of the assets, and integrating the acquired entity into the buyer's business.

Most of all, due diligence identifies possible deal-breakers. A seller may "prepare" a business for sale, making it look better than it really is, in order to obtain a higher price. A professional due diligence review guards against the overstatement of assets and understatement of liabilities. It also provides an analysis of historic earnings and the likelihood that forecasted operations can be met.

One crucial, but often overlooked, part of due diligence involves the tax consequences of the proposed transaction. Depending on the operating structure of the acquiring company and the target (for example, a C corporation, S corporation or partnership), it may be better to receive assets versus stock. Keep in mind that a badly structured sale can result in a tax disaster.