One of the signs that your business is growing and thriving is prospective acquisitions. When you decide that the time is right to pursue an acquisition, the due diligence process is important. Unfortunately, many business owners lose sight of the risk factors and red flags in the excitement of the growth process.
There are a few red flags that you should pay attention to.
Financial statement disarray
A key part of acquisition due diligence is reviewing the financial statements of the potential acquisition. When those statements seem disorganized, vague or incomplete, that should alert you to potential problems. This is particularly true if they have no audited financial statements to show. Give careful consideration to pursuing other options in this case to avoid hidden financial disasters.
Environmental challenges
In a time when consumers and businesses alike are prioritizing social responsibility and sustainability, acquiring a company that is environmentally irresponsible may not reflect well on your company. If you discover environmental challenges in your review of the company’s processes, you may want to consider other opportunities.
Outstanding litigation
Acquiring a business in the midst of pending litigation is not a sound financial decision for any company. If there are any pending cases involving the company in question, it is often best to wait for the final settlement of those cases before you start evaluating the potential of the acquisition.
These are important red flags that you should be mindful of when considering any acquisition. Position your company for greater success by avoiding pitfalls like these in your acquisition process.
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