Webinar

Red Flags in Business Financials: What Every Buyer Should Know

Learn to identify warning signs in business financial statements that could indicate problems or fraud during the acquisition process.

Recorded June 15, 2023
52 minutes
4,875 views

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Webinar Overview

Financial due diligence is a critical part of any business acquisition, but it's easy to miss subtle warning signs that could indicate serious problems. In this webinar, our financial experts walk you through the most common red flags to look for in business financial statements and how to verify the integrity of financial data during your due diligence process.

What You'll Learn

How to identify inconsistencies in financial statements that may indicate manipulation

Common methods of revenue inflation and expense hiding (and how to spot them)

Tax return vs. financial statement disparities - what's normal and what's concerning

Cash flow analysis techniques that reveal operational health beyond profit figures

Inventory and accounts receivable verification strategies

Key Topics Covered

1. Financial Statement Analysis

Techniques for analyzing balance sheets, income statements, and cash flow statements to identify inconsistencies. We cover horizontal and vertical analysis methods that quickly highlight anomalies.

2. Earnings Quality Assessment

How to determine if reported profits are sustainable or artificially inflated. We discuss one-time revenues, unusual transactions, and accounting policy changes that can mask true performance.

3. Working Capital Red Flags

Signs of working capital manipulation including inventory issues, accounts receivable aging problems, and unusual payable patterns that could indicate cash flow problems.

4. Revenue Recognition Issues

Common tactics used to inflate revenue figures and how to verify true sales performance through alternative data sources and customer verification techniques.

5. Verification Procedures

Step-by-step guidance on how to verify financial information through third-party confirmation, documentation review, and analytical procedures.

Real-World Case Studies

Throughout the webinar, we examine real case studies (with names changed) where financial red flags led to the discovery of significant issues during acquisition due diligence:

  • How one buyer identified $300,000 in phantom inventory before closing
  • The service business that was pre-billing customers to inflate revenues
  • How examining customer concentration revealed dangerous dependency on a single account
  • The case of mysteriously declining margins in a manufacturing business

Webinar Slide Deck

PDF slides with key points and examples (2.8 MB)

Sarah Johnson, CPA

Financial Due Diligence Specialist

Sarah has over 15 years of experience in M&A financial due diligence and has helped clients identify financial issues in more than 200 transactions.

View profile

Related Resources

Due Diligence Checklist

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Business Valuation Fundamentals

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Financial Statement Analysis Template

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Financial Analysis Tools on ExitVelocity.AI

Our platform includes advanced financial analysis tools to help you identify red flags automatically during due diligence.

Automated ratio analysis and benchmarking
Financial trend visualization
AI-powered anomaly detection
See Financial Tools in Action

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