Why is it Important to Rely on Auditor’s Due Diligence Report Before Buying a Business?
Entrepreneurship is not only about starting a new business but you can be an entrepreneur by buying a business that is already up and running. Buying a business saves you from struggling for years to build a startup, however, it also comes with certain huge challenges. Many businessmen in Dubai become frustrated when they discover that the business they bought wasn’t running the way they thought it would. Conducting proper due diligence is a critical step while buying a business and consulting with the top audit firms in Dubai will help you in carrying out the due diligence.
If you fail to avail the best audit services in Dubai to perform the due diligence, you may end up paying more for a business than it was worth. Along with that, you may also underestimate the amount of money you need to start running the business after the purchase. If you are still not convinced why you need an auditor’s help to buy a business, read ahead and enlighten yourself.
A good auditor uses numbers to tell a story
Your auditor will help you gather all the necessary information when you start enquiring about buying a business. The relevant information may include financial records, customer information, performance records and sales history and the auditor will translate this information into a narrative. This narrative is built around how Bush has been running in the past and how it is likely to operate in the future.
A qualified auditor will scrutinise all the financial information such as balance sheets and profit and loss statements and try to match it with the communication that happened between you and the seller. Any abnormal extraordinary things will not elude the radar of the audit firms in Dubai. Analysing the numbers will help you understand whether the revenue is growing or in decline and whether costs are rising.
Auditors Help with Legal and other regulatory Checks
Before you buy a business, you are required to carry out certain legal scrutinies such as,
- Whether you can have the same license or not?
- The VAT properly accounted for and paid to the authorities?
- Is there any fine from the various government departments and any pending legal cases are there or not?
- Did the company comply with Economic Substance Regulations or not?
- Whether existing employees are paid-off up to the date of their dues as per the labour law if you are hiring them?
- Are there any long outstanding utilities?
The audit firms in Dubai can help you with carrying out a background check on such matters. If the company you are planning to buy has
Help you Understand fundamental drivers of the business
After identifying a business that has the potential to be purchased you must search for the factors that generate a profit margin for that business. The seller and agent always try to present a healthy picture of the business. However, instead of falling for their story, you must question why profit margins might be higher than the industry average or why they have been increasing recently.
Auditing firms in Dubai can help you dive deep into the financials of the company and make you understand what happened. Specifically, an auditor can assist you to carry out proper financial and commercial due diligence to understand the cash flow characteristics to identify anomalies such as fraud, earnings management, and why a business has a competitive advantage. Furthermore, the auditor will help you to draft your ‘first 100-days implementation plan’.
Making sure the seller’s story is consistent with the numbers
Good auditors in Dubai will ask you about the reason stated by the seller for selling the business. The account will verify the reason to see if the seller’s story is consistent with the numbers. Most sellers will be reluctant to admit it if financial stress is the real reason for selling the business. For instance, a seller may cite family troubles as the reason for selling the business but when the auditor checks the financial information you may realise that the business has been running at a loss for some time.
In such cases, the real reason for selling will be financial stress rather than family or other reasons. However, it doesn’t mean you should backtrack from your decision to buy the business. Instead, finding out the real reason will give you more power to bargain for a better price. Here, the auditor helped you obtain the right information about the company, which made the buying process worth the money.
Realistic Valuation & Estimation of Running Costs
Mastering the art of business valuation is one thing that most entrepreneurs find increasingly tough. Most often they fail to understand the key parameters to apply while performing the valuation. Many investors and entrepreneurs ignore future capital expenses including investments, machinery and equipment, maintenance and working capital needs.
Consulting with top auditing companies in Dubai will help you understand the cost associated with the business beyond the purchase. You will also understand how many of those costs you will have to take into account when you buy the business. You can also get an accurate picture of the amount you have to borrow to buy the business as well as the money you will require to meet future needs.
Make a Sound Decision with Jitendra Chartered Accountants
Auditors can help you make a sound decision when you are confused about buying a business. You can use their advice and due diligence checklist to understand the veracity of the seller’s reason for selling, the real value of the business and the future running costs. An auditor’s advice will save you from overestimating the value of the business and will give you the power to negotiate a better price. For better decision-making, you can avail of the services of the best audit firms in Dubai such as Jitendra Chartered Accountants (JCA).
By availing of JCA’s audit services in Dubai, you get to work with a team of qualified professionals. JCA has more than 20 years of experience in the UAE and has served clients from all kinds of industries irrespective of the size of their business and served entrepreneurs from making the correct decision of buying the existing business. JCA can help you make the right decision while buying a business and save you from spending money if the business is not worth it.