How to Research Troubled Companies You Want to Purchase
Part of the Business Valuation For Dummies Cheat Sheet
Prospective buyers who are interested in purchasing a troubled company go through a due diligence process that involves gaining permission to see the business's operations.
A company may require a legal confidentiality agreement to allow information gathering about the business. When you’re given the go ahead for due diligence, use this list to request everything you need to make informed decisions.
Don’t be discouraged if a company doesn’t offer up everything you ask for. Some records may be unavailable (or missing).
A summary of the company’s tangible assets so you can physically view them and get a price range on them for potential sale valuation.
A summary of the company’s intangible assets so you can examine records on those items within a company’s computers or physical files.
Recent audited financials and tax returns.
Any verbal or written details on the company’s status with creditors (lenders, suppliers, customers waiting for merchandise, etc.).
Anything resembling a strategic plan in the way of market expansion, product development or other efforts to improve the business.
Projections of future income. (The current owner might .have his or her own data or opinion on this. You definitely want to know what that person thinks about business prospects so you can verify them.)
A summary of all current and possible legal or regulatory complaints against the company (which you should verify through a public documents search).
Account summaries/data for suppliers and customers (accounts payable/receivable data, contracts, invoices, notices of delinquency in payments by the target company or its customers).
Regulatory or tax notices — current or projected. (If a company is expecting major regulatory or tax changes in its business, potential buyers should know about it.)
Any analyses by the target company of its supplier and customer concentration and what losing any of them could mean to the business (compare with your analysis of all supplier and customer data).
Access to all possible correspondence, phone records or e–mails between regulators, suppliers, customers or anyone else in close contact with the target company. (And if you are contacting these constituencies yourself, make sure you ask for their copies of such data as well.)