Managing The Process: Critical Information for a Financial Abstract
Financial abstracts are an important aspect of the due diligence process, helping identify potential credit issues or bankruptcy concerns. Some types of information are arguably more valuable than others; including too much information can dilute the effectiveness of the deliverable. Abstracts, by design, should be concise. The goal with a financial abstract is to provide the key details readers need to know in order to make informed decisions.
This article highlights some of the most critical information to include in a financial abstract.
- Credit reports. A financial abstract should summarize information provided in credit reports, including potentially negative information, numbers of open accounts, outstanding balances, and available credit.
- Financial statements. Including information gleaned from the organization’s balance sheet can provide a window into the company’s ability to meet long-term obligations. For abstract purposes, highlight key details from income statements, shareholder equity reports, and cash flow statements.
- Tax information. Available tax information can also provide a picture of the company’s ability to meet its financial obligations. Summarize the organization’s tax status, including whether outstanding taxes are still owed to federal, state, and/or local tax authorities.
- Loan details. Details about existing outstanding loans or credit agreements can create a more complete picture of the company’s current financial status. For each obligation, include the borrower, guarantor, lender, original loan amount, outstanding balance, maturity date, amortization schedule, and terms.
- Section references. If the abstract includes a summary of a particular section of a loan document, financial statement, or other document, include a section reference or refer to the page where the original provision is located.
When preparing financial abstracts, keep the audience in mind. Abstracts should avoid legal jargon and be presented in a simple, straightforward manner.
Baer Reed provides financial due diligence and other outsourced legal and business services for attorneys and law firms. Contact us today to learn more.
- On July 16, 2020
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