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Due Diligence
McShane Group performs due diligence for lenders, investors and attorneys.  Due diligence comes naturally to us because it is a major portion of any McShane Group turnaround or crisis management engagement.  It is imperative that we learn as much as possible, as quickly as possible, about the client company, its people and its industry.  Only then are sufficient facts available for decision making.

There are several ways to learn about the health of a business.  One way is to review the usual management reports over some historical period.  Special reports often are then needed to answer questions raised by those standard reports.  While investors may see the more common reports, how many investors examine check registers or detailed Accounts Payable reports or inventory reports?  Check registers show who is getting paid, and for what.  Sometimes the disposition of those payments is very revealing.  A detailed A/P report reveals whether critical vendors are receiving prompt payment.  In one engagement, for example, we discovered six month's of unpaid employee health premiums, after being told by the CEO that all employee-related expenses were being paid.  Other information may show unapplied sales credits, sales returns over an extended period of time, the number of defects or rejects on the production line, or overtime by department, to name just a few.

A second source of valuable information is employee interviews - and not just with the executive management team.  To learn about accounts payable, talk to the clerk entering the data.  (That's how we discovered six month's of unpaid health insurance premiums).  To understand returns and their reasons, speak to the collections manager.  If invoices are not being paid due to poor quality, the collections manager undoubtedly is hearing about it from customers.  To learn about production, talk to the line workers.  Often we will hear things which contradict what management has told us; that may expose the difference between management's expectations and what actually can be accomplished.  Visit the warehouse and the shipping dock to determine if product is indeed moving out, as reported.  There might also be a build-up of returns that has gone unnoticed.  Finally, observe housekeeping and safety practices.  They say a lot about management's attitude.

Then talk again to senior management.  Do they really understand what's going on in their respective departments?  Do they obtain regular reports of key parameters?  Is their input consistent with the input from departmental personnel?  One CEO told us a large portion of the seven-figure accounts receivable, over 90 days, was going to be collected.  Unfortunately, after spending time with the collections manager, it was obvious most of that cash would not be collected.

Some of the discoveries we find merely reveal a lower than expected value for the company.  Other times our findings are more serious, such as unpaid withholdings of FICA, health premiums, 401(k) contributions or payroll taxes.  Those findings can have much more severe consequences for investors, especially if they sit on the Board of Directors.

Why McShane Group?  Stated simply, McShane Group has no axes to grind, no vested interests, no egos to satisfy and no bonuses predicated on the transaction's completion.