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Archive for 'Due Diligence' Category

Some Brokers Make Money by NOT Selling Anything: A Nightmare Tale…

By Hoke - Last updated: Wednesday, November 19, 2014

I all starts very innocently with wording in the broker’s Representation Agreement “in the event of an escrow default by buyer, the escrow proceeds are split equally between broker and seller”. This is how the nightmare begins… Think about this. Now the broker now makes five times more money (50%) in the event of an […]

Good Faith Deposit / Beware of Broker Trust Accounts

By Hoke - Last updated: Friday, January 3, 2014

A Good Faith deposit is often required to accompany the offer. The amount is typically 10% to 20% of the sale price. Because it is impossible to really really know if the sellers claims are valid without solid verification, most reputable business brokers will hold the Good Faith Deposit uncashed until Due Diligence is successfully […]

What is Due Diligence?

By Hoke - Last updated: Monday, September 3, 2012

Due Diligence part of the sale process when the seller opens all aspects of the business to the buyer. In essence this is where the seller must convince the buyer that the business performs and is as represented. This convincing is done mostly via providing historical documentation and buyer observation. The buyer has an opportunity […]

Financial Due Diligence Checklist

By Hoke - Last updated: Saturday, September 1, 2012

This typical list is complete and detailed. Many smaller businesses may not have available this depth of detail. Bank Statements for the for past three years Cash Receipts Journals for the for past three years General ledgers for the for past three years Cash disbursement journals/check registers for the for past three years Copies of […]

What Due Diligence Documents Do Buyers Ask For?

By Hoke - Last updated: Sunday, August 8, 2010

Due Diligence is really about having the Buyer feel comfortable with the business acquisition. Each Buyer has a different threshold to feel enough comfort to buy the business. The amount of Due Diligence documentation is up to the Buyer and Seller. The actual Due Diligence List can be negotiated and mutually agreed as part of […]

What Are The Key Adjustments To Recast Discretionary Income?

By Hoke - Last updated: Sunday, August 1, 2010

The main Adjustments are: 1. Owner’s Salary 2. Interest 3. Depreciation 4. Amortization 5. Owners Perks 6. Non Recurring Expenses The above items are typically added to Discretionary Income. Proper Recasting the Income Statements is very important. Understating the Recast will leave “money on the table”. Overstating the Recast creates an unpleasant surprise or can […]

When should Escrow open?

By Hoke - Last updated: Sunday, August 1, 2010

Typically Escrow opens after the Business Buyer and Business Seller complete Due Diligence.

How important are Tax Returns as a means of proving Discretionary Income?

By Hoke - Last updated: Sunday, August 1, 2010

Tax Returns are just one of several means to validate Income. Some Buyers think that Tax Returns are absolute. However, they are not foolproof. There are cases where the Business Seller overstated the Tax Returns. Commercial Banks typically require the recent three years of Seller’s Tax Returns when making a Business Acquisition Loan.