Growth Services, Acquisition Due Diligence
Description of Client: Investor Group
Situation as described by Client:
- Target company was profitable but in bankruptcy due to mismanagement by recent owner
- Founder was CEO
- During bankruptcy the company had generate significant cash and paid off debts arising during the mismanagement.
- “High Level” consulting engagement consisting of inquiries of personnel and review of documents and accounting records of the target with report of findings and recommendations
- The CFO was a consultant who joined company around time of bankruptcy
- The CFO did not have an accounting background
- The Company’s inventory was complex without adequate internal controls over the bookkeeping
- Related Companies were included in the proposed acquisition
- Uncovered numerous issues with both the valuation of the inventory as well as the control of the inventory transaction within the books
- Uncovered customer advances recorded as receipts on sales billed in advance of shipment.
- Quantified new costs with vendors
- Due to inadequate controls over inventory, deal was placed on hold until controls resolved.