Elsewhere I have written about the feeling I have that banks are soon going to insist that all businesses of any size, indebted to the bank in any way, must have a proper annual audit conducted on the business.
For reasons of value and the eventual selling price of a business, it is also a good idea to maintain the highest standards of reporting in the years leading up to a sale. Certainly we apportion greater value to better reporting standards when conducting a valuation.
I am reminded of a business I sold some years ago. In the final negotiations, the due diligence was tested by a cuppla corporate guys who had decided to exit the big business environment, and take over a reasonably small business. We’re talking about R10M here, and about eight years back, so perhaps not a tiny business.
As we were hammering out the finer details, the purchasers let the auditor of the business know that they were going to be sticking with the firm. The message was clear: “You guys have to carry some responsibility in the due diligence”. I believe the same firm is still involved, and the business has grown significantly since then. Imagine the safe guard given to a purchaser where the auditor is retained. If anything untoward does appear after the seller has ridden into sunset, there will be serious consequences for the auditors.
Compare that to a business which has a set of financials laid out on a generic spreadsheet, accompanied by the usual director platitudes, and very limited (if any) notes. It may all be in fulfillment of statutory requirements, but how far would these numbers really be trusted, even if they are going to stand up to scrutiny? The old first impressions story…