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Due Diligence Checklist: an M&A Expert List of All the Documents You Need

Kison Patel
CEO and Founder of DealRoom
Kison Patel

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

CEO and Founder of DealRoom

This post was originally published in February 2020 and has been updated for relevancy on April 15, 2024.

In M&A, one of the most excruciating processes is the due diligence. This involves countless documents involving a ton of people. This is where a due diligence checklist comes in.

Whether you are a buyer or the seller, there are several advantages to having a first-class due diligence checklist. 

As a seller, the mere process of putting these documents together will give you a good overview of your own business and where some of its potential weaknesses lie. As long as the business hasn’t been sold, you can work towards strengthening those areas that your due diligence documents suggest might need reinforcing.

On the buyer's side, receiving these documents in a timely and orderly fashion speeds up the M&A process, quickly providing reassurance that what’s under the hood checks out with what the company’s marketing documents show.

Above all, it’s the best signaling mechanism a company has to show that it’s worth acquiring.

Every year, hundreds of M&A deals rely on our due diligence checklists for a smooth and no-surprise M&A process. This due diligence checklist is a comprehensive summary of all the documents you can typically expect for a comprehensive due diligence.

What is a Due Diligence Checklist?

A due diligence checklist is a comprehensive list of documents, information, and tasks that are used during the due diligence process. It incorporates all the necessary information a company must acquire from their target before moving forward with a deal. The purpose of this checklist is to thoroughly assess a target company’s business, assets, capabilities, and financial performance.

At DealRoom, we put together a complete due diligence checklist that enables to track the diligence progress and secure important documents. This allows practitioners to make well-informed decisions throughout a deal’s lifecycle.

{{widget-hsembed}}

Complete Due Diligence Checklist

Having a solid due diligence checklist is essential to keep track of your due diligence progress. Here's a list of the core due diligence documents:

1. Legal Due Diligence Documents

These documents generally cover all legal aspects of a company’s operations. These are one of the most important documents that a buyer would ask during this process, which are essential for the seller’s business. Here are the key types of legal due diligence documents:

  • Shareholder certificate documents
  • Local/state/federal business licenses
  • Occupational license
  • Building permits documents
  • Zonal and land use permits
  • Tax registration documents
  • Power of attorney documents
  • Previous or outstanding legal cases

Don't miss our complete legal due diligence checklist.

2. Financial Due Diligence Documents

Financial due diligence documents are essential in assessing the financial health and viability of a company. These documents provide a clear view of the target company's financial status and performance history. Here are some of the most important financial documents commonly requested during M&A:

  • Up to date tax returns documents
  • Audited financial statements (at least 3 years)
  • Auditor's correspondence for last five years
  • Copies of all loans and credit agreements
  • Details of company investments (bonds, marketable securities, etc.)
  • Capital structure
  • Projections, capital budgets, and strategic plans
  • Up to date tax and pension liabilities
  • Details on when contracts and leases are renewed and whether the terms change
  • Details of stockholders (percentage holdings, voting rights, etc.)
  • Foreign exchange reserves
  • List of unrecorded liabilities
  • List of collateral for debt
  • Details of owner withdrawals (if any)
  • Revenue by client (if possible)
  • Gross margins analysis
  • Fixed/variable expenses analysis
  • List of non-operational expenses
  • General ledger

{{cta-block3="/cta"}}

3. Sales and Marketing Due Diligence Documents

  • Detailed overview of sales and marketing strategy
  • Marketing/sales coordination protocols
  • Revenue listed by customer
  • Exhibit relationship between marketing expense and revenue growth
  • Details of existing sales contracts (and when they expire)
  • List of top 10 suppliers
  • Sales reports by category of product or service
  • Details of credit terms with customers
  • Current market share (if possible)
  • Percentage of sales owing to each sales channel (e.g. online, offline, direct sales, etc.)

4. Human Resources Due Diligence Documents

  • Provide a list of current employees and independent contractors
  • Employee rules of conduct handbook and safety policies
  • Detail past employee disputes (if any)
  • Detail employee and independent contractor terms of employment
  • Detail updated employee resumes
  • Outline policy of working with labor union (if any)
  • Outline training conducted with existing employees
  • Worker's compensation/unemployment claims history
  • Outline policy of bonuses, incentives, commissions and deferred commissions
  • Detail policies for sick days, paid holidays, paid vacations and overtime pay

5. Property, Plant, and Equipment Due Diligence Documents

  • Equipment
  • Real estate
  • Technology
  • Inventory

6. Contract Due Diligence Documents

  • Customer contracts
  • Supplier contracts
  • Joint venture/partnership agreements
  • Settlement agreements
  • Franchising agreements
  • Accounts receivable schedule
  • Accounts payable schedule
  • Equipment leases
  • Non-compete agreements
  • Employee contacts
  • Loans, credits, and guaranties agreements

7. Intellectual Property Due Diligence Documents

  • Trade secrets
  • IP claims and litigation
  • Domain names
  • Issued patents
  • Patent applications
  • Design patents
  • Design patent applications
  • Industrial designs
  • Industrial design applications
  • Liens on intellectual property
  • Copyrights
  • Licenses
  • Licensing agreements
  • Trademarks
  • Agreements/documents regarding ownership and rights of use of advertising copy, trade-marks, logos, and slogans

8. Company's Good Standing and Organization Due Diligence Documents

  • Organizational Chart
  • Shareholders/percentages owned
  • Voting trusts, subscriptions, calls, puts, options, and convertible securities agreements
  • State of incorporation status reports for the last three years
  • Assumed names
  • Company minutes book
  • Company bylaws and amendments
  • List of the states and countries where the company has employees, owns assets, leases assets, and does business
  • The Articles of Incorporation/amendments.
  • Annual reports for the last three years.
  • A Certificate of Good Standing from each Secretary of State where the company conducts business

When Should You Provide Due Diligence Documents to the Buyer?

Keeping thorough and updated due diligence documents allows you to get relevant information over to the buyer of your business efficiently and with as little friction as possible. But the question then arises:

  • When should due diligence documents be provided to the buyer?
  • Can this be done too quickly?

Absolutely. Unfortunately, the world of M&A is full of tire kickers who enjoy finding out about businesses simply to see what’s out there. Asking you for due diligence documents rarely costs them anything (hence the reason why some bankers push for charging buyers for due diligence).

The best policy is to begin by providing audited financial statements - a great signaling device for any owner looking to sell their business that their ship is in order - and send over documents as they’re requested by the buyer, who should have signed an NDA in advance.

The more buyers you speak to, the more likely it is that you’ll be able to anticipate what documents they’re looking for in advance, making the process even more efficient.

How to Collect and Share Due Diligence Documents

What emerges from bringing together all of the documents outlined above is a true understanding of the business for sale and what’s ‘under the hood.’

Many of the documents will be partially or fully available straight away (for example, details of your employees and their training to date) while others, such as the audited financial statements, will by their very nature, take longer to put together.

Below, we will share and compare how to collect and share due diligence documents using the old school way, and the modern approach of doing M&A. 

The Old School Way: Using Excel Sheets

Collecting due diligence documents should be done in a systematic manner that allows you to see where documents can be obtained, whether more should be added, progress reports on their collection and more. We suggest putting together a list in a table format structured similarly to the one provided below:

due diligence documents

Keeping structured records like this in a spreadsheet also allows you to filter for results faster. Whatever headings you opt for, the ‘last updated’ column is particularly important, allowing you to see at a glance when due diligence documents were last updated and thus, how likely they are to be relevant.

However, using spreadsheets has limitations, risks, and inefficiencies. 

  1. Data security - Excel doesn't have robust security features. Sensitive information could be at risk, especially if you are sending it via email to various stakeholders. 
  1. Time-consuming - Using Excel involves relying on manual data entry, which can be extremely time-consuming. Also, with the number of people involved in an M&A deal and different people from different departments touching the spreadsheet, it is very likely that errors will occur. One wrong formula, formatting or data entry can wreak havoc in the entire spreadsheet.
  1. Real-time collaboration-  Excel Sheets are not designed for real-time collaboration, which can cause bottlenecks and inefficiencies. Team members will have to wait for the latest version of the file before they can start working on their part. If not, they could be working with outdated information or duplicating someone else’s work. 
  1. Integrated communication: Communication in Excel trackers relies on external channels, such as email or messaging apps. This can lead to fragmented discussions and a lack of context within the platform, creating confusion.
  1. Cannot store diligence files - Excel cannot store files and will also rely on third-party applications. This limitation often results in confusion, lost files, or hard-to-find files. 

A Better Way to do M&A: DealRoom

DealRoom on the other hand, is an M&A Optimization platform purpose-built by M&A practitioners. It’s designed to handle the entire M&A process, from pipeline management through to due diligence and integration.Let’s take a look at some of the advantages of using DealRoom.

  1. Save 20+ hours/deal - DealRoom is a unified, end-to-end M&A platform that allows users to centralize all deal data and communication. This enables M&A teams, both internal and external, to save significant time, and therefore money. , In addition, DealRoom users can automate playbook creation to remove duplicative and time consuming playbook creation tasks  for every single deal..
  2. Reduce cost - Because DealRoom is an all-in-one platform, instead of relying on and paying for a broad set of tools, teams can reduce their technology expenses. The increased efficiency that DealRoom powers also reduces billable hours and accelerates deal velocity, both contributing to lower cost. 
  1. Increases alignment— What truly sets DealRoom apart from other software is its parallel workstream capabilities. It allows the diligence team and the integration team to work together simultaneously, more specifically, it empowers the integration teams earlier visibility of deal theses.  Which, in turn, increases the success rate of deal value capture.  

While Excel Sheets have served well in the past, there are new and better ways to do M&A in this modern era. For more information about how to use DealRoom for this process, check out DealRoom for due diligence.

This post was originally published in February 2020 and has been updated for relevancy on April 15, 2024.

In M&A, one of the most excruciating processes is the due diligence. This involves countless documents involving a ton of people. This is where a due diligence checklist comes in.

Whether you are a buyer or the seller, there are several advantages to having a first-class due diligence checklist. 

As a seller, the mere process of putting these documents together will give you a good overview of your own business and where some of its potential weaknesses lie. As long as the business hasn’t been sold, you can work towards strengthening those areas that your due diligence documents suggest might need reinforcing.

On the buyer's side, receiving these documents in a timely and orderly fashion speeds up the M&A process, quickly providing reassurance that what’s under the hood checks out with what the company’s marketing documents show.

Above all, it’s the best signaling mechanism a company has to show that it’s worth acquiring.

Every year, hundreds of M&A deals rely on our due diligence checklists for a smooth and no-surprise M&A process. This due diligence checklist is a comprehensive summary of all the documents you can typically expect for a comprehensive due diligence.

What is a Due Diligence Checklist?

A due diligence checklist is a comprehensive list of documents, information, and tasks that are used during the due diligence process. It incorporates all the necessary information a company must acquire from their target before moving forward with a deal. The purpose of this checklist is to thoroughly assess a target company’s business, assets, capabilities, and financial performance.

At DealRoom, we put together a complete due diligence checklist that enables to track the diligence progress and secure important documents. This allows practitioners to make well-informed decisions throughout a deal’s lifecycle.

{{widget-hsembed}}

Complete Due Diligence Checklist

Having a solid due diligence checklist is essential to keep track of your due diligence progress. Here's a list of the core due diligence documents:

1. Legal Due Diligence Documents

These documents generally cover all legal aspects of a company’s operations. These are one of the most important documents that a buyer would ask during this process, which are essential for the seller’s business. Here are the key types of legal due diligence documents:

  • Shareholder certificate documents
  • Local/state/federal business licenses
  • Occupational license
  • Building permits documents
  • Zonal and land use permits
  • Tax registration documents
  • Power of attorney documents
  • Previous or outstanding legal cases

Don't miss our complete legal due diligence checklist.

2. Financial Due Diligence Documents

Financial due diligence documents are essential in assessing the financial health and viability of a company. These documents provide a clear view of the target company's financial status and performance history. Here are some of the most important financial documents commonly requested during M&A:

  • Up to date tax returns documents
  • Audited financial statements (at least 3 years)
  • Auditor's correspondence for last five years
  • Copies of all loans and credit agreements
  • Details of company investments (bonds, marketable securities, etc.)
  • Capital structure
  • Projections, capital budgets, and strategic plans
  • Up to date tax and pension liabilities
  • Details on when contracts and leases are renewed and whether the terms change
  • Details of stockholders (percentage holdings, voting rights, etc.)
  • Foreign exchange reserves
  • List of unrecorded liabilities
  • List of collateral for debt
  • Details of owner withdrawals (if any)
  • Revenue by client (if possible)
  • Gross margins analysis
  • Fixed/variable expenses analysis
  • List of non-operational expenses
  • General ledger

{{cta-block3="/cta"}}

3. Sales and Marketing Due Diligence Documents

  • Detailed overview of sales and marketing strategy
  • Marketing/sales coordination protocols
  • Revenue listed by customer
  • Exhibit relationship between marketing expense and revenue growth
  • Details of existing sales contracts (and when they expire)
  • List of top 10 suppliers
  • Sales reports by category of product or service
  • Details of credit terms with customers
  • Current market share (if possible)
  • Percentage of sales owing to each sales channel (e.g. online, offline, direct sales, etc.)

4. Human Resources Due Diligence Documents

  • Provide a list of current employees and independent contractors
  • Employee rules of conduct handbook and safety policies
  • Detail past employee disputes (if any)
  • Detail employee and independent contractor terms of employment
  • Detail updated employee resumes
  • Outline policy of working with labor union (if any)
  • Outline training conducted with existing employees
  • Worker's compensation/unemployment claims history
  • Outline policy of bonuses, incentives, commissions and deferred commissions
  • Detail policies for sick days, paid holidays, paid vacations and overtime pay

5. Property, Plant, and Equipment Due Diligence Documents

  • Equipment
  • Real estate
  • Technology
  • Inventory

6. Contract Due Diligence Documents

  • Customer contracts
  • Supplier contracts
  • Joint venture/partnership agreements
  • Settlement agreements
  • Franchising agreements
  • Accounts receivable schedule
  • Accounts payable schedule
  • Equipment leases
  • Non-compete agreements
  • Employee contacts
  • Loans, credits, and guaranties agreements

7. Intellectual Property Due Diligence Documents

  • Trade secrets
  • IP claims and litigation
  • Domain names
  • Issued patents
  • Patent applications
  • Design patents
  • Design patent applications
  • Industrial designs
  • Industrial design applications
  • Liens on intellectual property
  • Copyrights
  • Licenses
  • Licensing agreements
  • Trademarks
  • Agreements/documents regarding ownership and rights of use of advertising copy, trade-marks, logos, and slogans

8. Company's Good Standing and Organization Due Diligence Documents

  • Organizational Chart
  • Shareholders/percentages owned
  • Voting trusts, subscriptions, calls, puts, options, and convertible securities agreements
  • State of incorporation status reports for the last three years
  • Assumed names
  • Company minutes book
  • Company bylaws and amendments
  • List of the states and countries where the company has employees, owns assets, leases assets, and does business
  • The Articles of Incorporation/amendments.
  • Annual reports for the last three years.
  • A Certificate of Good Standing from each Secretary of State where the company conducts business

When Should You Provide Due Diligence Documents to the Buyer?

Keeping thorough and updated due diligence documents allows you to get relevant information over to the buyer of your business efficiently and with as little friction as possible. But the question then arises:

  • When should due diligence documents be provided to the buyer?
  • Can this be done too quickly?

Absolutely. Unfortunately, the world of M&A is full of tire kickers who enjoy finding out about businesses simply to see what’s out there. Asking you for due diligence documents rarely costs them anything (hence the reason why some bankers push for charging buyers for due diligence).

The best policy is to begin by providing audited financial statements - a great signaling device for any owner looking to sell their business that their ship is in order - and send over documents as they’re requested by the buyer, who should have signed an NDA in advance.

The more buyers you speak to, the more likely it is that you’ll be able to anticipate what documents they’re looking for in advance, making the process even more efficient.

How to Collect and Share Due Diligence Documents

What emerges from bringing together all of the documents outlined above is a true understanding of the business for sale and what’s ‘under the hood.’

Many of the documents will be partially or fully available straight away (for example, details of your employees and their training to date) while others, such as the audited financial statements, will by their very nature, take longer to put together.

Below, we will share and compare how to collect and share due diligence documents using the old school way, and the modern approach of doing M&A. 

The Old School Way: Using Excel Sheets

Collecting due diligence documents should be done in a systematic manner that allows you to see where documents can be obtained, whether more should be added, progress reports on their collection and more. We suggest putting together a list in a table format structured similarly to the one provided below:

due diligence documents

Keeping structured records like this in a spreadsheet also allows you to filter for results faster. Whatever headings you opt for, the ‘last updated’ column is particularly important, allowing you to see at a glance when due diligence documents were last updated and thus, how likely they are to be relevant.

However, using spreadsheets has limitations, risks, and inefficiencies. 

  1. Data security - Excel doesn't have robust security features. Sensitive information could be at risk, especially if you are sending it via email to various stakeholders. 
  1. Time-consuming - Using Excel involves relying on manual data entry, which can be extremely time-consuming. Also, with the number of people involved in an M&A deal and different people from different departments touching the spreadsheet, it is very likely that errors will occur. One wrong formula, formatting or data entry can wreak havoc in the entire spreadsheet.
  1. Real-time collaboration-  Excel Sheets are not designed for real-time collaboration, which can cause bottlenecks and inefficiencies. Team members will have to wait for the latest version of the file before they can start working on their part. If not, they could be working with outdated information or duplicating someone else’s work. 
  1. Integrated communication: Communication in Excel trackers relies on external channels, such as email or messaging apps. This can lead to fragmented discussions and a lack of context within the platform, creating confusion.
  1. Cannot store diligence files - Excel cannot store files and will also rely on third-party applications. This limitation often results in confusion, lost files, or hard-to-find files. 

A Better Way to do M&A: DealRoom

DealRoom on the other hand, is an M&A Optimization platform purpose-built by M&A practitioners. It’s designed to handle the entire M&A process, from pipeline management through to due diligence and integration.Let’s take a look at some of the advantages of using DealRoom.

  1. Save 20+ hours/deal - DealRoom is a unified, end-to-end M&A platform that allows users to centralize all deal data and communication. This enables M&A teams, both internal and external, to save significant time, and therefore money. , In addition, DealRoom users can automate playbook creation to remove duplicative and time consuming playbook creation tasks  for every single deal..
  2. Reduce cost - Because DealRoom is an all-in-one platform, instead of relying on and paying for a broad set of tools, teams can reduce their technology expenses. The increased efficiency that DealRoom powers also reduces billable hours and accelerates deal velocity, both contributing to lower cost. 
  1. Increases alignment— What truly sets DealRoom apart from other software is its parallel workstream capabilities. It allows the diligence team and the integration team to work together simultaneously, more specifically, it empowers the integration teams earlier visibility of deal theses.  Which, in turn, increases the success rate of deal value capture.  

While Excel Sheets have served well in the past, there are new and better ways to do M&A in this modern era. For more information about how to use DealRoom for this process, check out DealRoom for due diligence.

See how can DealRoom help you streamline due diligence process and accelerate your deal by up to 100%.

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Complete Due Diligence Checklist

This checklist ensures you’re asking the right questions during the diligence process of a target company or prior to looking for a buyer.
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