Diagnosis of company can begin with a diagnosis of activity. It consists in analyzing the competitiveness of the company in its market and sector of activity.

To make a diagnosis of the activity, it is first necessary to carry out a market research. For tips and practical examples, the CCI: titleContent Business Builder provides a methodology :

Market research methodology: our tips for not missing anything

CCI France

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Once the market study has been carried out, the results must be cross-referenced with company-specific data in order to assess its market position. This is about compare the company's situation to trends and practices on his market.

In particular, the following should be examined:

• the evolution of the activity : compare the evolution of the company's turnover and sales with that of the market
• customers : compare the company's customers to the profiles and needs identified in the marketplace and identify any dependency on certain customers
• offering and positioning : to compare the products or services, prices, channels and differentiating elements of the company with those of its competitors
• competition : situate the company in relation to the main competitors, their offers, prices and advantages
• development prospects : compare expected market developments and company development opportunities, such as new supply, new market or diversification

To synthesize the results, the SWOT matrix can be used to distinguish between company strengths and weaknesses and the opportunities and threats related to its environment:

Swot method: identify opportunities and weaknesses of a project

Bpifrance Creation

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The 2^e The type of diagnosis to be carried out is that of the means. This step consists in take stock of the various professional tools and means (stocks, real estate, equipment, work tools, installations, etc.) that the company has to carry out its activity, as well as on their operation.

In particular, the following should be examined:

• Premises and real estate : check the condition of the premises, their size, their adaptation to the activity and any works to be expected. When the premises are rented, it is also necessary to examine the conditions of the lease and its remaining duration.
• Equipment and equipment : identify the main equipment used, its age, condition, level of use and maintenance or renewal operations to be planned.
• Inventories : check their level, rotation and status to identify any dormant, obsolete or hard-to-sell stocks.
• Tools and work systems : identify the various software, IT tools, equipment and other solutions essential to the operation of the company and check their status, renewal and associated rights of use.
• Intangible assets : identify the markings, patents, licenses, franchises, trade name and domain name, files or know-how that contribute to the value of the company and check that they can be kept or transmitted.
• The organization of the company : analyse the way in which procurement, production or service provision, inventory, administrative and accounting management, and customer and supplier relations are organized.

This analysis makes it possible to identify the means essential to the continuation of the activity, the elements to be renew or improve and the investments to be made. It also makes it possible to determine whether certain assets should be excluded from the transfer or be the subject of a separate transaction.

Human resource diagnosis, or human diagnosis, is crucial in a company sale. Certain transmission operations in fact result in transfer of existing employment contracts to the new employer.

It is therefore a question of identifying the resources available to the company and measuring the impact of the departure of the manager on its functioning.

In particular, the following should be examined:

• Staff and functions : identify employees, their seniority, functions, level of responsibility and the skills required for each position.
• Key competencies : identify employees who possess particular expertise or play a key role in the company's operations. One competency matrix can help to highlight available skills and those that may be lacking.
• The organization of work : check the division of tasks, the responsibilities of each, the availability of job cards and the actual organization of the company.
• Conditions of employment : review employment contracts, remuneration, benefits, anticipated retirements and other items that may impact the recovery.
• The social climate : to identify any conflicts, difficulties in social dialog, absenteeism or organizational problems that could weaken the company.
• Dependence on the leader : determine which tasks, customer or supplier relationships, decisions or competencies are primarily the responsibility of the leader.

Diagnosis can be made from company social documents (pay slips, employment contracts, single register of staffetc.). It can also be carried out thanks to the organization chart and job descriptions, supplemented by interviews with the manager and employees.

The financial diagnosis makes it possible to evaluate the profitability and financial strength of the company, but also to anticipate the expenses and difficulties that the buyer might face. This is an important step since it allows the buyer to quantify the realistic or unrealistic aspect of the operation.

This diagnosis is based mainly on the analysis of the company's accounts over several financial years.

In particular, the following should be examined:

• The actual profitability of the company : analyze the evolution of turnover, expenses, margins and income over several years. We must also identify the exceptional items which may temporarily improve or degrade the results, such as one-off aid, insurance compensation, litigation or exceptionally deferred expenditure.
• Stability of activity : comparing the results over several fiscal years allows us to identify a gradual decline in turnover, a decrease in margins, an increase in certain expenses or a strong seasonality. An increase in turnover does not necessarily mean that activity increases if it results solely from an increase in prices.
• Cash flow : check the level of available cash, customer payment terms, payables and possible short-term financing needs. A company can be profitable while encountering difficulties in financing its current expenses. In case of difficulty, solutions exist for improving the company's cash flow.
• Debt and financial commitments : identify outstanding loans, large debts, outstanding financing (government-guaranteed loans (PGE) for example), financial leases and any guarantees or sureties. These commitments must be taken into account when assessing the financial conditions of the recovery. To measure the debt situation of the company, it is possible to use a financial indicator: the debt ratio. It can be used to find out the proportion of a company's debts to its equity. It is calculated as follows: passive / equity.
• The investments to be planned : Identify the costs needed in the near to medium term to sustain or expand the business, such as replacing equipment, works, upgrading or recruiting.

The analysis of these different elements makes it possible to determine whether the performance of the company is sustainableidentify any financial weaknesses and measure any costs that the purchaser may have to bear after the transfer.

Before any transmission, it is important to check that the legal and administrative situation of the company is secure. This diagnosis makes it possible to identify irregularities, commitments or disputes likely to complicate the transmission.

In particular:

• Check the company's compliance : ensure that statuses are up to date in the case of a business, that the main tax and social obligations are met, that necessary insurance are subscribed and the administrative authorizations required for the activity are valid (a beverage debit license for the sale of alcohol, for example).
• Review contracts that are essential to the activity : identify in particular the lease, contracts with the main customers and suppliers, service contracts, licenses and subscriptions or IT contracts. Then, check their deadlines, their renewal terms and any clauses that may prevent their continuation during transmission.
• Identify potential disputes and litigation: identify ongoing litigation or situations that may give rise to litigation such as commercial disputes with a partner, significant unpaid payments or disagreements between partners, including on the possible transfer of the company. These elements need to be identified early enough to assess their impact on transmission.
• Securing intangible assets : check that the markings, trade names, signs, domain names, patents, software, client files and other rights necessary for the activity belong to the company, that their use is legally secure and that they may be transmitted as part of the transmission.

This diagnosis allows toanticipate legal difficulties, to bring the elements which must be brought into conformity and to secure the conditions of transmission.

In order to evaluate the consequences of possible negligence in respect of the environment and regulatory standards, it is important to carry out a quality, safety and environment (QSE) diagnosis.

For each of these 3 obligations, the diagnosis is structured around 4 axes: environment, health and safety at work, hygiene and establishments receiving the public (ERP).

In particular, the following should be examined:

• The environment : verify the rules applicable to waste managementthe storage and use of products and hazardous waste, as well as any nuisance related to the activity (noise, olfactory nuisance, etc.). Where the activity is subject to specific environmental regulations, the necessary authorizations and controls must also be verified.
• Health and safety at work : verify the measures put in place to protect employees, including occupational risk assessment, safety equipment, training and preventive actions. The single occupational risk assessment document (DUERP) in particular, must be up to date.
• Hygiene : according to the activity, check compliance with hygiene regulations applicable to premises, equipment, products and working conditions, particularly in the companies of the catering and food retail sector.
• Institutions receiving the public (ERP) : when the company welcomes the public, it is important to check compliance with the security and accessibility regulations applicable to the premises, as well as the necessary documents. For example, there are fire safety regulations of a ERP.

This diagnosis allows toidentify items for compliance, if any, and identify possible works to be expected before the transmission of the company.

The 6 diagnoses carried out must make it possible to obtain a clear vision of the company, in order to be able to derive a synthesis. The performance of the various diagnoses must allow:

• from reinforce or not the desire of the leader to transmit his company
• of actions to be taken to improve the feasibility of the transmission project (opening up to new markets, improving equipment, making investments, etc.)
• of company strengths, which do not necessarily require improvement for the transmission project

In case of difficulty in evaluating its company, it is possible to be accompanied by professionals (accountants, notaries, lawyers, M&A experts, CCI: titleContent, CMA: titleContentetc.

To find all the professionals authorized to the diagnosis of company, see the following section " Who can help me? ».