Due Diligence from Audit and Tax Perspectives
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Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s guest host, and I’m back again with Chris Hatten and Martin Euson, two of the Directors on our Transaction Advisory Services team. Guys welcome back to the playbook.
Chris: Thanks, Jen.
Martin: Thank you, Jen.
Jen: Now I’ve heard you guys talk about due diligence, what is it?
Martin: On the tax side Jen due diligence really comes down to a process of investigating and examining a target company’s tax filings and tax records historically to see if there’s anything in there that may present risk or exposure that the buyer wants to be aware of so they can take that into their decision-making ahead of time before learning about those things afterward.
Chris: From the financial reporting side of things it’s more so an income statement approach because a lot of times the transaction is based off some multiple of earnings or revenue and so as the buyer you want to make sure that there are some reliability and predictability behind those numbers, and so we kind of go in and do a deeper dive on that.
Jen: So it sounds like it’s usually the buyer doing the due diligence, is that?
Martin: That’s correct Jen but oftentimes the seller will also due diligence on itself. Diligence can be a disruptive process if you’re having multiple buyers come in and multiple bidders come in and going through that process, so that can be a little bit disruptive. And it also gives the seller a chance to find out what, if any, skeletons are in their closet before a buyer comes in and does diligence and so it can occur on both sides.
Chris: Definitely. To further Martin’s point it is a very disruptive process and so they want to make sure that they’ve got all their historical records, their financial statements, everything else in order to add a little smoothness to the process.
Jen: Perfect. Well, I think we might need to dive into the sell side a little bit later, can I get you guys back?
Chris: We can do that.
Jen: All right, perfect. To learn more about how we can assist you with potential transactions visit PKFTexas.com/transactionadvisoryservices. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.