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ProAdvisor On Staff
As seen in
Los Angeles Certified Health Business Development Consultant
Tuesday February 07, 2017
Special circumstances require extraordinary actions --
we are asked by our clients to hit a home run! To help in ways
which seem impossible.
times, we must say what we believe for
our client's benefit, even if they don't want to hear it.
Consider how we've stepped up to the plate for our clients... and
extrapolate our successes to your challenge.
– Due diligence for
a fast food restaurant purchase.
Convince our client he was going out of business unless he changed
his method of doing business.
- Formula Plastics -
Guidance during a potential sale of business and advice.
- Find a bookkeeper when none existed.
California Roasters – Due diligence for
a fast food restaurant purchase.
When due diligence for an acquisition was
successful, and lack of it was a disaster
A friend of ours came to us when he joined forces with 2 associates to
purchase a ‘mom and pop’ fast food restaurant. None of the parties had
previously been in the restaurant business but were enthusiastic about the
location and had been watching the traffic for about a year.
The parties asked us to provide ‘due diligence’ services for them
regarding their purchase. We were given limited information: purchase
price, down payment, and revenues and monthly net cash profits told to
them by the seller. Our task was to determine if the minimum information
was reasonable accurate and to estimate their chance for a decent return
on their investment.
Our solution: To minimize
fees for our clients, we prepared a healthy checklist of information we
would need from the seller, as well as pertinent questions to be answered.
When everything was ready, we visited the seller’s offices and spent a
full day reviewing data and gathering information. We provided our clients
with a summary of why they should proceed with the purchase, which they
Two years of hard work by the buyers passed and the restaurant became more
profitable than projections. By that time the partners decided to expand
their concept to a second and third location. This time the operating
partner felt he knew enough about the business to purchase the second
restaurant without our due diligence, thereby saving the fee. Additional
partners were brought in to finance the purchase. After a year of
operations the new group contacted us and told us that the second
operation was a disaster. We found out that key information was not
analyzed prior to the purchase. This time we were asked to offer advice
about how to unload the second restaurant.
The point of this story is so often repeated in many ways – when you’re
penny-wise you usually end up being pound-foolish. It makes more sense to
invest in a skilled professional than to try to do it all yourself.
Read our testimonial from California Roasters
Challenge - To convince our client he was going out of business unless
he changed his method of doing business.
Our client has been in business for many years and has several wholly-owned
subsidiaries. The parent company is run by a management group supervised
by a board of directors. A subsidiary had gotten into financial trouble
due to changes in the industry and sub-standard local management. Losses
at the subsidiary level were mounting and required huge cash advances
from the parent company. A plea by the local management to continue in business swayed the board of directors to do so.
We envisioned the economic demise
of the parent company, drained by loans to a subsidiary that was mismanaged
and permitted to continue in operation by self-interested local management.
The board of directors was blind-sided. Our usual role as a CPA
is to advise clients of the potential problems from not making a change.
The problem in this case was not 'usual'.
Thus, our action was not usual. We wrote to the management group and
board of directors in straight-forward language, saying that had the
parent and subsidiary each been in their own business they would have
made significant changes months ago. Our call to action about the
impending insolvency of the parent company resulted in necessary
Challenge - Formula Plastics - Guidance during a potential sale of
business and advice.
After about ten years in business, a larger
company that was planning to go public approached our manufacturing
client. The larger company proposed to purchase our client’s business,
make him the manager of all manufacturing divisions, and offer him a
larger salary and a small percent of the overall operation.
Negotiations had been proceeding for months when our client asked us to
review the proposal: all documents and financial statements. Our client
was excited by the prospects and envisioned a large payday.
Our solution: Our analysis
revealed the following information that was readily available to our
client whose eyes weren’t open wide enough: The buyer was the person who
built the business and was planning to turn operations over to his less
experienced children. The transaction was in reality an estate-planning
maneuver by the buyer. Without our client’s business the public offering
potential was weak. Furthermore, our client would lose the control he
craved and the opportunity to build his own estate. We argued against the
buyout and our client agreed with us.
It is now ten years later and our client’s business has tripled in size.
Our client’s net worth has far exceeded what he thought it would be at the
time he asked us to evaluate the potential sale of his business.
testimonial from Formula Plastics
Challenge - to find a bookkeeper when none existed.
Our client was located in a small rural area several hundred miles
from a large city. Their skilled bookkeeper who ran their sophisticated
computer-based accounting system had left the company. Attempts to locate
a bookkeeper locally and in the city several hundred miles away
Draft an accounting systems manual
that outlined the accounting and data processing procedures in simple easy to understand
steps. Hire a data processing operator with general computer skills from
a more plentiful local labor market. Use our firm to handle the accounting
at year end.
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