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M&A: Conducting a Presale Audit

Article
2 minute read
March 20, 2015

Q: What’s a presale audit and why should I perform one?

A: In a presale audit, an M&A expert reviews a selling company’s financial statements, legal records and other documents for red flags and recommends changes that can improve the company’s marketability. Considering that potential buyers perform their own extensive due diligence, a presale audit may seem like an unnecessary expense. But it can, in fact, save sellers such as you time and money because it gives you the opportunity to fix problems before they can give buyers pause — thus improving your chances of getting a good price for your business.

Looking for clues

The main goal of a presale audit is simple: Confirm and reconcile reported with actual data. Auditors look for anything that could be considered negative or inconsistent by a prospective buyer and, thus, potentially cause the buyer to reduce the offering price or even terminate the deal. An expert will focus particularly on employee and client contracts and financial records, looking for:

Establishing ownership

A presale audit also ensures that your company’s most valuable assets are actually yours. Auditors will review intellectual property documentation, for example, to ensure that no conflicting ownership claims exist.

Such verification is critical to a company’s value. If, say, a business’s claim on a major patent is tenuous, it’s better to learn this before a prospective buyer finds out and significantly reduces its original offer.

Knowledge is power

If you’re planning to sell, you can’t afford to ignore your company’s flaws. A presale audit may uncover problems, but this process also provides you with an opportunity to fix them before a seller decides your business represents too much risk. 

© 2015