Financial Due Diligence
Financial Due Diligence is the main stage of preinvestment analysis of the company. It provides the estimation of reliability of financial information presented by the business, existing financial risks and prospectives of the project for investor.
Financial team of Danik Advisory is one of the best Due Diligence experts in Russia. We have more than 13 years of professional practice in audits and Due Diligence projects of any level of complexity in wide range of industries, including long-standing working experience in Big 4 companies. Our services combine high quality in accordance with best practice of the world's leading consulting companies with reasonable prices for our services.
Major values of financial Due Diligence:
- Understanding of the real financial indicators and financial position of the company
- Understanding of how and where the income forms and how it is destributed
- Identification of the major financia risks of the business
- Assesment of the quality of financial service of the company and qualification of financial staff
- Receipt of reliable financial base for business valuation and preparation of financial model
Some of our clients call call Financial Due Diligence "the audit". However ther have significant differencies. Yoy can read more about the differencies between Due Diligence and audit here.
Many consultants perform Due Diligence by structuring of financial information about the company and execution of the fixed number of analytical procedures. We do not share such approach as we consider it to be too formal and not ensuring identification of management's deliberate manipulations with financial statements as well as machinations from employees not controlled by management.
Our approach provides for development of procedures, which ensure identification of financial risks and problems. We pay much attention to tranactions with related parties and service companies, possible manipulations in prices for acquired equipment, materials as well as goods for sale, works and services. During he project we do not only confirm official financial information reflected in financial statements but also execute all possible procedures to confirm the non-official transactions.
In addition to deep theoretical and practical knowledge and ability to make the verification procedures effective we pay much attention to psichological aspects of communication process with representatives of the target. Our practice has shown that understanding of when, how and with whom to discuss the issue could play the critical role in receipt of valuable information about the business. We develop the communication strategy with the client so that to receive even the nondisclosed by the company information.
We khow that at present investors pay much attention to the valuation of staff qualification. That's why we do our best for helping them in this area and share our impression about what is happening in the company and what fortes and wises we mentioned during our communication with key employees.
How to increase the effectiveness of financial Due Diligence
In case the target is represented by production enterprise we recommend to combine financial verification with Technological Due Diligence because significant risks could cause from specifics of production process or the system of inventory control and management. The examples of such risks: gratuitously high level of production scrup included in expenses, artificially overstated production norms of raw materials with cash sales of their surpluses to 3rd parties. Such issues could be identified only by experts in concrete type of production process understanding the resonable norms for major production indicators.
If it is not planned to switch to the new legal entity within the investment deal, we recommend to combine financial verification procedures with Tax Due Diligence.
