Business buyers beware of the price: CPA

In statistics that should serve as a warning to financial planning practitioners looking to acquire other practices as part of the business succession push, CPA Australia has released the results of a survey emphasising the importance of the financial due diligence process.

The Perceptions of Financial Due Diligence report showed over 80 per cent of buyers would have paid too much for a business up for sale had they not undertaken financial due diligence.

The survey asked 246 of the professional body’s accounting and audit members for their perceptions about the decisions their clients made after going through the due diligence process.

Of those surveyed, one fifth acknowledged that 70 per cent of their clients did not end up purchasing the business after the due diligence process had been performed.

In addition, 36 per cent of respondents believed that at least half their clients would have agreed to pay consideration for the business above what it was worth had no due diligence been conducted.

Furthermore, each CPA member surveyed said the due diligence carried out prevented some of their clients from being out of pocket as it had convinced them not to go ahead with the deal.

CPA Australia audit and assurance policy adviser Jessie Wong said: “A lot of people wouldn’t dream of buying a second-hand car without having it checked by a mechanic.

“They might not think of using an accountant to check the financial state of a business, but the consequences for their business, their staff, their own livelihoods and families are compelling,” Wong added.