Financial Factbook

A financial factbook is the middle step between a home-made set of numbers and a full vendor due diligence. It is commissioned by the seller, usually from an audit or transaction advisory firm, and presents the financials the way a buyer would examine them – but without the formal report and without liability towards the buyer.

What it usually contains

• income statement, balance sheet and cash flow for the last three financial years and the current period
• an adjusted income statement with a bridge to reported earnings, see EBITDA normalisation
• revenue analyses by customer, product, region and cohort, with retention and attrition rates
• derivation of net debt and working capital at each month-end
• headcount and capacity data as well as capital expenditure
• a reconciliation from plan to actual for prior years

When it is the right choice

A factbook is worth it where a structured process with several interested parties is coming up but the numbers are not so complex that a full vendor due diligence is needed. It has three effects: every bidder works from the same basis, questions in the data room drop noticeably, and the discussion about adjustments starts from the seller's derivation rather than the buyer's.

What it does not do

A factbook does not replace a review. Buyers and their lenders as a rule still require their own financial due diligence. Unlike a vendor due diligence report it is not usually extended to the buyer, so it gives them no basis for a claim. Where that effect is needed, the full vendor due diligence has to be commissioned.

Lead time and effort

Preparation takes several weeks in practice and occupies the finance function considerably, because every analysis has to be traceable back to the books. The sensible moment to start is once the accounts are robust and the reporting structure stands – not once the process is already running. The wider frame is exit readiness.