CHALLENGE
A client approached us with the intention of purchasing a business. They had received the business’s prospectus and financial information and were considering making a significant financial investment. Our role was to conduct a thorough due diligence review to assess the viability and true value of the business.
OUR APPROACH
We performed a detailed analysis of the financial statements, focusing on the accuracy of add-backs, the sustainability of revenue versus expenses, and the overall return on investment. We also examined the operational structure and identified that the current owner’s role was critical and would need replacing if the sale proceeded.
FINDINGS & OUTCOME
Our investigation revealed several discrepancies. Some add-backs were incorrectly calculated, and the owner’s salary—which would need to be replaced—had not been properly accounted for. Additionally, the valuation we conducted came in considerably lower than the seller’s asking price. Essentially, the buyer would have been purchasing a job rather than a profitable enterprise, with a long path to any meaningful return on investment.
RESULT
Based on these insights, the client decided not to proceed with the purchase. This decision turned out to be very wise, as it later emerged that the business had been involved in questionable or potentially illegal practices. In the end, the thorough due diligence not only provided a more accurate valuation but also helped the client dodge a bullet.
