Due-Diligence Buying a Business

Due-Diligence:-

In India, for buying, selling or investing in a business we come across with the term ‘due diligence’. In order to ascertain the true worth of a business, investigation or depth analysis I did. Before buying a business certain things are considered such as the location of the business, and check whether there is any legal issue involved which may land buyer in trouble. Hence before buying a business due-diligence is a must. Before buying a business various aspects of due-diligence are considered.

MFI

 Types of Due-Diligence

   1.Business

  • It starts with evaluating the type and size of business;
  • Nature of ownership;
  • The position of the business and;
  • Products and services with respect to the market;
  • Profile of the seller, relationships with suppliers and other channel members;
  • Quality of the existing staff, the status of existing leases (in case if any).

   2. Financial

  • To evaluate the financial health of the business, it is better to seek the assistance of an accountant.
  • The request is made for audited financial statements of the business for at least the last three years and if applicable then provisional financial statements for the ongoing year.
  • Evaluate the profitability, net worth, cost structure, debt-equity allocation, asset utilization, current ratio, and any major outstanding liabilities.
  • Financial projections for the next three to five years and ascertain the future potential of the business in an objective manner.

   3. Technical

  • Evaluate the core technology elements in the business;
  • The efficiency of technology used in the business;
  • Evaluate whether it can be easily extended to match with future technology;
  • Check the licenses and patents for any technological innovation carried out by the business;
  • To verify whether there is adequate infrastructure to support the current and future technology.

   4. Legal

  • In case the business has been served any legal notices then look for legal matters of concern, and to get to know about the present status of such notices;
  • Tax compliance of the business;
  • Ownership disputes on ownership of the business, any ongoing or past litigations;
  • Safety aspects of plant and factory, if any, and so on.
  • For a buyer, the best time to conduct due diligence is after shortlisting maximum of 2 businesses, which matches criteria to the maximum possible extent. The perfect time to take the deal forward and conduct due-diligence to investigate after satisfying the overall initial assessment of the business.

Reasons for Conducting Due-Diligence

Here are the following reasons for conducting due-diligence:

  1. It helps in verifying the issues or concerns in a business which can affect the purchase decision.
  2. It helps in gathering inputs which are required to carry out an objective valuation of the business.
  3. It is important for managing the future transition in a better and smoother way.

Conduct Due-Diligence

  1. For conducting due diligence the best way is to have in place a cross-functional team consisting of an accountant, a lawyer, a tax advisor, and a business analyst.
  2. Create a checklist of documents which are required from the business owner.
  3. On a regular basis, tracking of the receipt of such documents.
  4. Prepare a list of all the questions for which clarification is required, and periodically share these with the seller.
  5. Keep addressing issues in a timely manner.

For more information visit NBFCTakeover.

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Preparing Business for Sale online

Prepare Business for Sale:-

Over the last few years, we have worked with the many business owners. From our experience, we can give some expert tips.

In the process of selling a business, preparation is an important step. The main benefit of sale preparation is to review it with a fresh eye. The business owner tends to get involved in the day-to-day affairs of the business and barely get time to look at things and consider things as objectively as possible. With the NBFC for Sale preparation, it can help the business owner to do that.

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A good sale preparation can help in creating a great first impression on prospective buyers. For smoothening of the sale journey, books of accounts and business documents must be in order, the internal system must be reviewed and doing organizational improvements. Efforts made for sale preparation led to better valuation.

The Process of Sale Preparation:- 

There are no such rules for the preparation of business for sale but we advise to opt a methodical approach. In sale preparation, one can start by getting together with key team members, and it is preferable from different functional areas such as marketing, distribution, finance and accounts, product development, human resources and so on. Take a decision regarding what can be done to make things better and identify their objective.

For sale, preparation takes a time-based approach. Take a decision regarding who will be responsible for key improvement areas? And accountable to whom. Identify the on-going affairs of the business.

NBFC

It should be kept in mind that this activity should not disrupt your usual business as far as possible. Periodically monitor the results of sale preparation and make sure that team members work efficiently.

Time Duration to Prepare Your Business for Sale:-

The time duration of sale preparation is again a matter of judgment. Sale preparation is mainly a function of two parameters:

  1. a) Improvement required making in business
  2. b) At what time one wish to sell the business

More time period will be required in case more improvements are required to make. It is important for an entrepreneur to distinguish the critical aspect from the less critical one.

Usually for most of the buyer’s books of accounts must be in shape is a priority. One should keep an eye on timeline goals for selling the business.

In case you are considering selling your business, then sale preparation should be started right away. You will get no good time to start. At the time of handling buyer, inquiries you will be more prepared if you start earlier and you will have the more advantage.

With the help of sale preparation you will be better able to take stock of things and will get an objective view of business where it stands as of now, and in available time period what can be done. The common mistake which seller makes is delaying the process so the more you delay, the more you will lose out. Now you should go for it and start preparing your business for sale.

What Are the Difference between Bank and NBFC?

In this article, we will discuss the key differences between NBCF and Bank. Both act as financial intermediaries and offer fairly similar services. But, there are many points of difference. There are very stringent licensing regulations for banks as compared to NBFCs.

What is an NBFC?

Principal business activities of a Non- Banking Financial Company consist of lending or financial leasing or hire purchase, accepting deposit or acquisition of shares, stocks, bonds, etc. To initiate any business they are required to acquire a license from RBI and they are regulated by RBI.

NBFC

Based on Liability, NBFC can be Deposit-taking or Non-deposit taking. NBFC can be of the following categories:

  • Loan Company
  • Asset Finance Company
  • Investment Company

What is a Bank?

Banks perform activities like granting credit, demand deposits and provide withdrawals, interest payment, cheque clearing, and other general utility services to their customers.

They dominate the financial sector of the country and provide a link as a financial intermediary between borrowers and depositors.

Key Differences between NBCF and Bank

Now that we have separately analyzed the activities undertaken by both these institutions, let us analyze how NBFCs and banks differ in nature and their functionalities.

  • NBFC is first incorporated as a company under the Indian Companies Act, 1956 and then apply for NBFC License from RBI, on the other hand, the bank is registered under Banking Regulation Act, 1949.
  • Banks are government authorized financial intermediary which are chartered to receive deposits and grant credit to the public. However, NBFC takeover is a company that provides banking services to smaller sections of the society without holding a bank license.
  • Banks are authorized to accept demand deposits, but NBFCs are not authorized to accept deposits which are repayable on demand.
  • As NBFCs are established as companies under Companies Act, 2013 they are allowed to accept up to 100% foreign investments. But, banks are can only accept foreign investments up to 74% of their total amount.
  • Like a bank, NBFCs do not form an integral part of payment and settlement cycle in the country.
  • RBI mandates the maintenance of reserve ratios like CRR or SLR by banks. NBFC have no such obligation.
  • Deposit Insurance and Credit Guarantee Corporation (DICGC) provide deposit insurance facility to the depositors of banks. Such facility is unavailable in the case of NBFC.
  • NBFC is not involved in credit creation like banks do for their customers.
  • Banks provide services like overdraft facility, the issue of traveler’s cheque, transfer of funds, etc. Such services are not provided by NBFC.
  • NBFCs are not allowed to issue cheques drawn on it like banks can.