Mergers and Acquisitions For Dummies (67 page)

Buyers also want to analyze Seller's accounting policies for various procedures, including, but not limited to, capitalizing assets, depreciation and amortization methods, and adjustments to EBITDA, as well as reviewing any changes in accounting methods.

The following list is simply an abridged list of typical financial due diligence, but it gives you an idea of the amount of data typically required to close a deal.

The usual trio of financial statements (income statement, balance sheet, and cash flow statement), preferably prepared by an outside accountant

Accounts receivable and accounts payable information, including aging schedules and details on bad accounts

The general ledger

Projections, capital budgets, and business/strategic plans

Listing of all bank accounts and safety deposit boxes, including authorized signatories

Schedule of prepaid expenses with backup documentation and accumulated amortization

Schedule of deferred income at most recent year-end and month-end

Schedule of security deposits at most recent year-end and month-end

Schedule of all indebtedness and contingent liabilities

Detail of accrued expenses as of the most recent year-end and month-end

Detail of any customer advances, deposits, and credit balances as of the most recent year-end and month-end

Accrued vacation is often the one lurking problem Sellers don't think about. If employees are due vacation time but haven't yet taken that time prior to the closing, Buyer will demand a reduction in the purchase price equal to the value of that vacation time.

Sales and marketing info

Who are Seller's customers, and how does she market to them? Who are her competitors? The following are some of the sales and marketing basics any Buyer wants to determine during due diligence:

Complete customer list, including name, address, telephone number and contact name