Business Analysis Checklist

Introduction

The basis of this checklist is that no "early warning system" or financial model
will always work consistently and uniformly well. This is not necessarily a
substitute for financial models, but the premise is a very thorough
understanding of any company that will allow anyone with good, pragmatic
business sense to identify whether and when a company is likely to run into
difficulties, and whether and when, it is suitable to invest in.

The first step in understanding any business is to understand the dynamics of

the current economic environment. This would then be followed by a thorough
understanding of the dynamics of the sector in which the company operates.
And lastly, would then be followed by an understanding of the business itself.
1 – Track Record
Areas for analysis and issues to understand
Trend and ratio analysis
Including: revenue growth, gross margins, operating margins, cashflow from operations etc.
ROCE and other core capital efficiency ratios
Normalised profits: separate out historic exceptional earnings and costs
Level of historic annual volatility in revenues, margins and ROCE
Historic growth compared with competitors

2 – Business Profile
What is major focus of the company?
What are the major sources of revenue and profit?
Financial performance of individual divisions, business units, product lines
Which are the key business functions?
Location and geographic issues
What would management change if they had a "magic wand"?
What is major focus of the company?
3 – Competitive Position
Market share: stable or changing
Value, pricing and quality proposition
Barriers to entry
Characteristics of competition: cottage industry, monopoly, dominant companies etc.
Maturity of industry
What are competitors doing?
Oversupply in the industry
Competitor vulnerabilities
Who is the most successful competitor and why?
Is the company a leader or a laggard?
Financial benchmarking compared with competitors
What are the emerging market trends?
Is the industry changing slowly or quickly?
How has the company withstood competition?
Are market trends amplifying weaknesses?
Prospects for alternative delivery mechanisms or substitute products
Threat from internet

4 – Differentiation
What makes the company stand out from competition?
What advantages does it have over other businesses?
Does it have a strong brand presence?
Intellectual property, patent protection etc.
Proprietary products
Is there a track record of innovation?
New product/ service development programs and costs
5 – Management & Staff
Subjective assessment of company's management
Management culture
Are management candid in answering all positives and negatives?
Performance of management in previous jobs
Length of management tenure and continuity
Management succession plan
Total headcount
Loss of key staff risks
Staff turnover
Does the company have a sufficient available pool of skilled employees?
Is the company able to attract talent?
Training programs
How is workforce motivated?
Financial incentive programs
Staff productivity and efficiency
Remuneration rates compared to the market

6 – Cashflow Profile
Cashflow profile: start up, cash-cow, cashflow negative with growth etc.
Seasonality
Consistency of historic cash generation
Expectation of any exceptional cash outflows or inflows
Ability to service debt repayment schedules

7 – Profitability & Margins

Breakeven point
Fixed and variable cost structure
What are the biggest areas of expenditure?
Can the company withstand price pressures?
Operation gearing: what volume efficiencies are available, economies of scale
Sensitivity to changes in debt financing and terms
Currency risks from suppliers and to sales etc.
Profitability compared with competitors
8 - Indebtedness
Financial ratio analysis
Level of fixed to variable debt
Level of secured to unsecured debt
Level of asset backing & availability for further security for lending
Contingent liabilities
Relationships with banks or other sources of finance
Other potential sources of external finance
Use of lease financing
Covenant issues
Pension funding

9 – Quality of Earnings
Level of sensitivity to external economic factors
Diversification
Recurring income
Level of repeat business versus reliance on continuous new customers
Major contracts
Reliance on key customers
Can growth be achieved by rolling out a proven, successful business model?
Fashion element to product lifecycle and market acceptance
Pricing power
Order visibility / order book lead-time

10 – Capital Expenditure Profile

Fixed capital intensive or not
Capital expenditure required to maintain current business
Capital expenditure required to expand business
Capital expenditure lead times
11 – Working Capital
Working capital positive or negative with growth
Debtor collection policies and actualities
Creditor payment terms
Efficiency of inventory turnover and management
Inventory obsolescence

12 - Customers
Vital contacts and partners
Do customers face high switching costs?
Available customer feedback
Carry out "store checks" - i.e. own surveys of trade
Customer retention rate/ loyalty schemes etc.
Number and spread of customers
Customer demographic and financial profile

13 – Sales & Marketing

What resources are devoted to marketing and sales?
How does sales and marketing process work?
Is there a marketing plan?
How well known is the company in the market place?
Are marketing / sales sufficiently effective?

14 - Suppliers
Key suppliers
Importance/ exclusivity of key supplier arrangements
Continuity of supply
Variability in cost of supplies
Contractual nature of supply arrangements
Ability to buy forward
15 - Accounts
Ensure every number in the accounts is understood
Who are auditors?
Quality of management reports
Timeliness of management accounts
Reliability of data
Historic forecasting accuracy
Examine all accounting policies
When were assets last revalued and valuation policies

16 – IT & Systems
Key processes, systems and IT
Adequate controls over subsidiary or overseas companies
Standardisation across business units
Does the company harness IT effectively?

17 – Facilities
Are facilities up-to-date and adequate?
Is there excess capacity?
Freehold ownership
Lease obligations
Planning issues

18 – Legal, Governance, Regulation & Environmental

Outstanding litigation
Any other significant contracts with external parties
Are corporate governance standards sufficiently high?
What is the regulatory environment?
Are all regulatory standards adequately met?
What potential legal and regulatory changes may affect the business?
Environmental issues
19 – Ownership Structure
Who owns the company?
Any shareholder issues
Cross shareholdings with other enterprises
Is there high managerial share ownership?
Shareholdings pledged as collateral

20 - Culture
Is there a discernible culture, philosophy and value set?
Is the morale of employees high?
Are sufficient rewards in place to encourage a culture of excellence?
Internal communication

21 - Strategy
Does the company have a strategic plan and/or mission?
Is the plan realistic and/ or innovative?
Potential acquisition opportunities
Strategic partnerships
Is there an exit strategy?
22 – Summary Output (To Be Expanded)
What are your key risks?
What are your key business drivers?
What are your KPIs?
What is your future cashflow profile?
What is your sensitivity analysis?

23 – Forecasting (To Be Expanded)

What are your Do's and Don’ts?
How will market perform in comparison to its performance over the last 5-10 years?
Will the historic trend now speed up, continue as previously, or slowdown? B97
Will a decline bottom out or will rapid growth peak and plateau?

24 – Easy Deck Research (To Be Expanded)

Report and accounts
National statistical offices, trade data
Trade associations, trade press
Business and financial press
About Growbridge

Growbridge provides a range of business development services to high growth potential

SME’s, Corporates and progressive International Development Agencies.

Growbridge currently works with clients from across the UK, North America, Europe, and
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When you hire the Growbridge team, you will be assigned a senior expert with a track
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margins, managing cash flow, identifying new income streams, restructuring or providing
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