How We Checked 47 Documents in 3 Business Days
It started on Tuesday morning, October 4, 2024. The owner of a sewing room near Lodz called with a simple question: will we have time to review the papers before Friday? We tell it like it is — 47 documents is a lot for 72 hours, but we knew that without it, negotiations with the German buyer would fall apart.
Binders on the floor and a phone call at 7:15 AM
When we entered the client's office in Zgierz, the situation looked poor. Exactly 47 binders and loose files from the last 6 years of activity lay on the desk and floor. The owner, Mr. Marek, employed 34 people at the time and produced knitwear for large brands. The problem was that the investor from Munich set a hard condition: a full list of liabilities must be ready by Thursday at 4:00 PM. This left us with less than 3 business days for work that normally takes two weeks. There was no time for beautiful reports; what mattered was the concrete and catching bombs that could explode during the meeting in Lodz at Piotrkowska St.
We started with a quick inventory at 8:30 AM. Anna Nowak and one assistant spread out the documents by importance. First, the rental agreements for the 1,200 sq m hall, then contracts with electricity and gas suppliers, and finally the employee files. Often in such small companies, documentation is scattered. Mr. Marek remembered many 'handshake' agreements, but in the world of mergers and acquisitions, only what is on paper counts. By 7:00 PM on the first day, we managed to catalog 19 of the most important commercial contracts. Each had different notice periods, which was crucial for determining the final sale price of the sewing room.
By the evening of the first day, we knew one thing: two contracts with fabric wholesalers were expiring in 3 months with no possibility of automatic extension. This was the first important information for Mr. Marek. If the buyer had found out about this during negotiations, they could have lowered the price by at least 45,000 PLN. Our task was to prepare a strategy on how to disclose this before the other party's auditor did. We sit at the table with you, so we don't hide such things from the client. Honesty in papers is the only way for the transaction not to fall apart on the last straight before signing the contract at the notary.
In business, there is no room for guesswork. Either you have it in the papers, or it doesn't exist.
Selection without mercy, or how we rejected 32 unimportant letters
Wednesday was the day of the hardest work. We had to review 32 documents that looked important at first glance, but after deeper analysis, turned out to be just information noise. Without legal jargon, we explained to the client that old insurance policies from 2019 or correspondence with the city office regarding waste disposal would not affect the sale price. We focused on the meat. We found 4 annexes to leasing agreements for knitting machines that Mr. Marek had forgotten to mention. Each of these machines was worth about 82,000 PLN, and incorrectly entering their value in the table could have stopped the buyer's credit process.
Checking documents is not just reading; it's connecting dots. We compared records from contracts with invoices from the last 14 months. On Thursday at 11:45 AM, we hit on something that concerned us. One of the non-disclosure agreements with a subcontractor from Pabianice had a contractual penalty of 50,000 PLN for the mere fact of changing the company owner. This is a rare and very unfavorable provision. If we had missed it, the new owner would have had to pay this penalty in the very first month after the takeover. A quick call to the subcontractor and simple negotiation allowed for the preparation of a waiver statement before the Friday visit of the guests from Germany.
Work lasted 11.2 hours that day. We drank our second coffee and checked every name on the payroll. It turned out that 3 people had unused leave from last year totaling 58 days. For a small company, this is a real financial burden that had to be included in the final settlement. Mr. Marek was surprised that such details mattered. We explained to him that the buyer looks at the company like a machine — if one gear (document) squeaks, the whole machine loses value. Our audit was intended to oil those gears before someone else looked under the hood.
A trap in a rental agreement for 12,400 PLN
The biggest surprise came on Thursday afternoon. We were analyzing the lease agreement for a smaller warehouse that the company rented from a private person. In point 14.3, in small print, it was added that any change in the company's share structure required a handling fee of 12,400 PLN. This was not a large amount in the scale of the whole transaction, but such 'surprises' act on buyers like a red flag to a bull. They suggest that there are more hidden costs in the company. Because we found this 21 hours before the meeting, we could prepare the client for a short answer: 'We know about it, the amount will be deducted from the first installment'. This builds trust.
Trust in M&A is built on hard data, not promises. During those 3 business days, we not only read but also verified the legal status of the real estate in the land and mortgage registers. The Lodz commercial real estate market can be specific, especially with older factory halls. We checked 3 register numbers and confirmed that the hall had no new mortgages that the owner might not know about. This was crucial because the investor from Munich planned to modernize the production line and needed a clean mortgage for his own investment loan. We sit at the table with you, so we check things that others won't even ask about.
Ultimately, from the 47 documents, we prepared a clear list of 12 key risks. Each risk had an amount and a solution attached. It wasn't a thick book that no one would read. It was 4 pages of concrete. Mr. Marek received this document on Thursday at 3:45 PM, a quarter of an hour before the deadline. He could sleep peacefully the night before the most important day in his business career. He knew exactly where his weak points were and how to talk about them so as not to lose money. No fluff, no unnecessary adjectives — just facts that defend the company's price.
A hidden cost in a contract is not bad luck; it is an oversight that costs real money.
What we learned in those 3 business days
This situation showed us once again that small companies in the Lodz region often underestimate order in their papers. In 8 years of work, we have seen many such cases. The most important lesson from this audit? Never leave reading contracts until a week before the sale. If we had at least 5 days instead of 3, the client's stress would have been halved. However, even in such a short time, it was possible to avoid a loss of about 12,400 PLN from the handling fee alone and a potential breakdown of negotiations due to an error in contractual penalties. Hard facts, not promises — that saved this transaction.
The audit process at Consilium Krasiński always looks similar: tough selection, risk analysis, and preparing the client to defend the price. In the case of the sewing room near Lodz, the key was speed of reaction. Anna Nowak spent a total of 28 hours on these documents, which eliminated 88.8% of the buyer's uncertainty. The buyer from Germany was impressed that a company of such a profile had such a precisely prepared risk list. Often, the buyer's auditors have to dig through binders themselves, which makes them more suspicious. Here, they got everything on a platter, which shortened negotiations by a good 4 hours.
On Friday at 9:15 AM, when the delegation from Munich sat in the office at Piotrkowska St, Mr. Marek was ready. He didn't sweat over questions about contracts with utility suppliers or employee leave. He had our summary report in front of him and confidence in his voice. The transaction was tentatively agreed upon by 1:00 PM. This is thanks not only to the good condition of the company but primarily to the fact that we didn't let the papers surprise us. In M&A, the devil is in the details, and we caught those details in record time, while never stepping out of the role of an advisor who guards the client's interests.
Your company in the eyes of a buyer from abroad
Finally, it is worth adding that foreign investors look at Polish small companies through the lens of risk. For them, a lack of order in contracts is a signal that there may also be chaos in management. This quick audit of 47 documents showed that even if you didn't care about the archives before, it can be straightened out at the last minute. However, we recommend a review of key lease and leasing agreements once a quarter. This saves a lot of money in eventual valuation. In Lodz and the surrounding area, we have many great entrepreneurs whose companies are worth millions, but their documentation is worth much less. We change that.
For those interested, we have prepared a list of 8 documents we always start an audit with. These are lease agreements, insurance policies, key supplier contracts above 50,000 PLN per year, management employment contracts, work regulations, environmental permits, loan agreements, and tax audit protocols from the last 3 years. If you have these papers in one folder, you are a step ahead of 69.7% of the competition. If you don't have them, call us. We will review them together; we sit at the table with you and aren't afraid of old binders. We tell it like it is, without beating around the bush.
The final result of working with Mr. Marek? A sale agreement signed on November 14, 2024, for an amount 3% higher than originally assumed. The buyer appreciated the transparency and the fact that the company 'has no skeletons in the closet'. Those 3 days of intensive work by Anna Nowak paid off for the client with interest at the very first payment into the account. This is the best proof that an audit is not a cost, but an investment in a safe night's sleep and a better price. We invite you to the office in Lodz for a consultation — we will check what is hidden in your binders before someone else does.
Transparent documents are the easiest way to increase the value of a company by several percent.
