Chapter 3

Information Collection and Due Diligence

One of the most common questions asked during a typical business appraisal engagement is, “Why are they asking for that information?” Another commonly asked question is, “Do they really need that information?” This chapter explains both what the business appraiser needs in a business valuation engagement and why he or she needs it, as well as what the business appraiser needs to accomplish in a typical management interview.

Importance of the Information Collection and Due Diligence Phase

The analytical process of an appraisal engagement begins with the collection and review of all data expected to be relevant to the valuation. The data and information are broad ranging, cutting across industry and economic aspects of the subject business (referred to as the external environment) as well as the subject's financial and operating history and composition (the internal environment).

There are countless resources in the valuation world to use as a framework for compiling an information checklist. Users of appraisal reports should be aware of the range and scope of information that should be included in a well-crafted, thoughtful information request. Every engagement is unique, and proactive information collection is only one part of obtaining the relevant information. Some of the most useful information in an engagement is identified and collected after the initial list-making and review exercises. Such information usually comes to ...

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