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.  

Engaged for:

• “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 

Situational Appraisal:

• 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   

Results:

• 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.