Financial diagnosis of the company

The Concept of Financial Diagnosis for a Company

Undertaking a preliminary financial diagnosis of a company is an essential step to gain a comprehensive understanding of the company’s strengths and weaknesses from an external point of view, particularly for a potential buyer. This diagnosis provides a starting point to identify critical areas that need improvement and strong points that can be developed, with a view to transferring or selling the company. It also highlights the need to prepare the company carefully several months or even years before the transfer or sale.

The Strategic Diagnosis of a Company

The strategic diagnosis addresses questions such as: What market does the company operate in, and what is its growth rate and competitive intensity? What is the company’s strategy for exploiting this market, such as differentiation or cost domination? What are its potentials and how can they be developed or optimized? The strategic diagnosis anticipates the fundamental questions of any buyer and helps the seller position or reposition the company in relation to the profiles of buyers defined with our assistance.

Economic and Financial Diagnosis of a Company

Once the strategic diagnosis is complete, it is necessary to demonstrate the viability and economic attractiveness of the company and analyze its financial capacity in relation to its development needs to ensure its sustainability. The economic and financial diagnosis also allows the determination of the takeover envelope for the buyout and financing of a development plan.

Operational Diagnosis of a Company

Once a company has a strategy and adequate financial resources, the future buyer needs to ensure that it has effective operational capabilities. Critical analysis of specific operational aspects is necessary based on the type of target company. For example, the critical point for a service company will be the expertise of its teams, for an industrial SME it will be the factory, for a distribution company it will be logistics, etc. SMEs often have a recurring weakness in the intuitu-personae of their leader. Implementing a number two or middle management could require a year or more of delay.

Legal Diagnosis of a Company

A legal diagnosis of the company is necessary to verify that there are no legal obstacles to the future transfer, either from an internal point of view (shareholders’ agreement, approval clause, etc.) or from an external point of view (license contracts linked to intuitu-personae, etc.). It is also necessary to identify potential or proven legal actions against the company, including environmental and social risks.