that is licensed ■ Specialized equipment ■ Brand equity that can be leveraged ■ Customer databases ■ Good tenured people ■ Reliable financial systems, policies, procedures and people. YES! Strong financial operations can arguably be an asset especially since the numbers are the first thing a buyer looks at. But here is where legal diligence becomes critical. Buyers and their attorneys will verify: ■ IP ownership (not just usage), and potentiality for future licensing ■ Trademark registrations ■ Licensing agreements ■ Proper assignment of employee-created IP If IP is not legally owned and consistently protected by the company, the perceived value of that asset can drop significantly, even if it drives revenue. 6Formal third-party valuation (and what attorneys look for) A valuation firm typically uses the following approaches to determine a range of what your business is formally worth: ■ Income approach (cash flow analysis) ■ Market approach (comparable transactions) ■ Asset approach (net asset value) You can get a Comprehensive Valuation report or Estimated Valuation (limited scope) report. While these provide a formal estimate of business worth, attorneys often review the valuation assumptions through a legal risk lens: ■ Are liabilities fully disclosed? ■ Are there contingent risks? ■ Are there legal exposures that could impact future earnings? A technically sound valuation can still be negotiated downward if legal diligence uncovers unresolved risks. What buyers actually value (beyond the headline number) Sophisticated buyers do not just purchase financial performance. They purchase clarity, continuity, and reduced risk. And their attorneys are trained to identify anything that threatens those three. 1 Financials that are consistent and defensible Buyers expect: ■ Monthly financial reporting ■ Reconciled accounts ■ Logical expense tracking ■ Clear historical trends From a deal perspective, inconsistent financials increase diligence scrutiny and may trigger legal requests for additional disclosures and representations. 2Earnings that can withstand diligence During diligence, both financial and legal teams will test: ■ Margin fluctuations ■ Add-backs ■ Revenue recognition practices ■ Unusual expenses enterprising Women 83
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