Key Questions to Ask in Due Diligence

I’m often asked for a due diligence checklist by clients or acquirers who are anxious to make sure they’ve covered all their bases.

While there are plenty of due diligence checklists, I caution against using a list developed by someone else because it may not cover aspects that are important to your organization. Your questions will vary depending on your business and your strategy for acquisition.

I recommend using functional leaders from key areas of your organization such as sales and marketing, operations, IT and finance to develop a comprehensive list of questions that are specific to your company and your acquisition strategy. No one knows your company as well as the people who work there.

If you aren’t sure where to begin, I’ve listed a couple of key areas and example data points to help you get started.

  • Financial Information– This most often comes to mind when people think about due diligence. We typically ask for:
    • Audited financials
    • Pro-forma income statement, balance sheet and cash flow statement
    • Past five-year tax reports
    • Five-year projections
  • Customers and Suppliers – Request information on key customers and suppliers and any contracts that are in place.
  • Management – Don’t forget to gather information about the seller’s management, including personal references and a verification of personal history. What you may uncover by digging a little deeper may surprise you.  It’s much better to find any skeletons before closing the deal. On the other hand, you may also find some pleasant surprises and opportunities.
  • Product Literature – Ask for marketing literature such as sales brochures and promotional materials.
  • Other Information – We may ask sellers for company bylaws, articles of incorporation, board minutes and 401K plans.

Please note what I provided here is not complete. You should use these examples to develop a complete list with your acquisition team.

 

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