Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

July 11, 2016

Due Diligence – Truly a Challenge?

By Joseph Eneldas


By Achim Neumann

“Due diligence” is commonly referred to as the process of verifying information that was previously presented in preparation for the sale of a business.  Unlike buying a car or house, justifying the price for acquiring a business entity requires financial documentation to verify the true cash flow and to support a full “quality of earnings assessment.”  Typically, it takes the cooperation of various parties, including the principals, the CPAs, the lender, and often an appraiser to conduct such a process.

“We frequently experience business owners being somewhat concerned about the due-diligence process, and thereby are reluctant to provide the various documents requested by a buyer,” says Achim Neumann, President of A Neumann & Associates, a New Jersey based mergers & acquisitions and business brokerage firm.  “However, the better the business has prepared in advance, and the better the financial records, the less a business owner needs to be concerned.” Let us take a look at these factors.

Business preparation is the most important factor..  This should include capturing all key information about the business and probing  key metrics – for example, inventory turnover relative to the industry.  Critically, preparation should include establishing a value for the business, including the development of a formal business valuation report by an accredited national valuation firm.  Further, all assets and inventory should be identified by quantity, purchase price, and acquisition date, and for vehicles, VINs.  Excessive add-backs for personal expenses flowing through the business are of particular focus to buyers and need to be well-documented in the preparation stage. The more thorough this information is prepared, the better the business seller will fare in the subsequent due-diligence process.

The second component in performing due diligence is a well-functioning financial reporting system.  With ready, off-the-shelf software packages, even as simple as QuickBooks, there are few excuses for a business owner not being able to quickly generate most every conceivable report requested by a buyer.  Of course, this requires up-to-date data entry of all financial transactions, clearing old A/R and A/P balances, keeping the inventory correct, and so forth.  Financial reports are part of every due diligence, and, for that matter, should be part of any well run business, and the faster a business seller can provide such reports, the less buyer mistrust will creep into the buying process.

“Needless to say, the financial system needs to tie into, or at least be consistent with, the inventory system,” says Frank Arcoleo, Managing Director.  “This might at times require the manual transfer of information, which is perfectly acceptable if that is the way it’s always been done.”  Reviewing such inventory and equipment (FFE) is important to the buyer to determine the expected date of replacement and the implicit cash flow requirement, commonly referred to CAPEX (Capital Expenditures).

Finally, at times and depending on the location and nature of the business, commercial real estate might be involved in a transaction, and this might trigger the need for state environmental approvals prior to a transfer.  Such early assessments are called “Phase One” environmental reports, and they are designed to uncover any potential site liabilities that need to be remediated by the seller prior to a sale.  Often, the lender of the buyer requires such a “Phase One” report before any funding can be put in place.

In sum, whereas a business seller might perceive the upcoming due diligence with trepidation, in reality, it’s merely a verification of a previously-presented business description.  Most importantly, with today’s technology, such due diligence is commonly executed off-premises with no employee involvement.

A highly qualified M&A firm like ours is well-versed to guide the business owner through the preparatory and due diligence process.  But without such guidance, the process can be quite daunting.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or

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Client Testimonials

“ I appreciate your diligent approach to screening buyers and sellers as well as the high quality CIM that you produce.”

Andrey O, Investor

“Finally enjoying retirement after recently selling my business using the services of A Neumann & Associates. Joe Oddo provided the conduit to a successful transaction. Joe knew when to inject input and when to simply listen and allow the buyers to vent, step back and regroup. The outcome met our expectations and got us to the finish line, which included my staying with the company six months in order for the buyers to get their footing and keep our workforce in the loop. He helped at every step by providing his expert guidance & resources. Thank you!”

Emily Parker Myers, Co-Owner - Myers McRae

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

Pat Iammatteo, Owner

“Your vetting is simply outstanding, among the best I've seen from a broker.”

Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi
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If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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