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Financial Due Diligence Checklist

Financial Due Diligence Template

Financial due diligence is a delicate procedure that a company undertakes to determine the stability of its assets and to evaluate its financial health. It also helps to determine whether a company’s accounts are consistent.

  • Methods like trend analysis, interviews with key employees, and document reviews are usually employed during the process.
  • The ultimate goal of the process is to help the company eliminate asymmetric information.
  • The financial due diligence process may need to be modified to meet the specific needs of certain industries and businesses.

What Tasks Does the Financial Due Diligence Checklist Include?

General information

The primary objective of financial due diligence is to help businesses and organizations understand their financial situation. The intricate information gleaned at the end of the process will help a business make better investment decisions in the future and provide a foundation for forecasting the future financial situation of the business. The information required here includes everything from cash flow statements and technical collaboration to monthly management accounts and operational statistics.

THE ITEMS REQUIRED FOR FINANCIAL DUE DILIGENCE INCLUDE:

  • Audited financial statements of the company for the historical period
  • Reconciliation of the management accounts for the historical period
  • Investment agreements executed by the company
  • Copy of TAN, VAT, and other registration certificates
  • Cash flow statement
  • Details of any changes made in accounting policies
  • Working capital details for each quarter, and reasons for significant variation
  • Partnership agreements and technical collaborations
  • Overview of any changes in the shareholding pattern in the last two years
  • Monthly operational statistics
  • A detailed description of the business model of the company/organization
  • Revenue streams - current and future streams
  • A detailed description of the product and services offered

Revenue and Customers

Since the customers are the lifeblood of a business, it is critical that terms, as agreed upon by the customers, are reviewed and evaluated during the financial due diligence process. During the process, the revenue of the business should also be inspected.

ITEMS IN REVENUE AND CUSTOMERS DUE DILIGENCE INCLUDES:

  • Monthly and quarterly revenue
  • Revenue recognition policy
  • An up-to-date schedule of unbilled revenue with customers
  • Major commercial terms agreed with customers

Human Resources

A review of the company's Human Resource agreement is another integral part of the financial due diligence process as it brings to light contracts and financial decisions made by employees. Even more, it unveils the important details about employment agreement and compensation policies.

ITEMS IN HUMAN RESOURCES DUE DILIGENCE INCLUDES:

  • Details of retirement benefits and bonuses for senior management
  • Copies of the employment contracts for all employees
  • Attrition rates and staff turnover - valid reasons should be provided for the movement of employees
  • Details of salary increments
  • Details of key open positions in the business

Expenses

The financial due diligence process can go a long way in unveiling the various issues a firm may have. One way it does this is by analyzing the expenses made during the historical period. Consequently, documents related to insurance, accounts, and contracts will be needed during the process.

  • Ledger accounts of all revenue accounts and major expenses
  • Details of insurance cost
  • Breakdown of legal expenses, professional charges, and taxes
  • Quarterly marketing expenses
  • Quarterly technology and management expenses

Transaction and related parties

Inconsistencies in transaction and accounting details are one of the major causes of issues that can potentially shake the foundation of a business. A financial report acts as a mirror that reveals the shortcomings that may pose a risk to the growth of a business. Below are some documents that are needed:

  • Copies of all contracts with related parties
  • List of affiliated parties specifying the nature of the relationships with said parties and companies
  • Details of transactions (e.g. purchase, sales, and loans to or from)
  • Details of resources and facilities shared with other businesses
  • General ledger accounts of related parties
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Financial Due Diligence Checklist

Financial Due Diligence Template

Financial due diligence is a delicate procedure that a company undertakes to determine the stability of its assets and to evaluate its financial health. It also helps to determine whether a company’s accounts are consistent.

  • Methods like trend analysis, interviews with key employees, and document reviews are usually employed during the process.
  • The ultimate goal of the process is to help the company eliminate asymmetric information.
  • The financial due diligence process may need to be modified to meet the specific needs of certain industries and businesses.

What Tasks Does the Financial Due Diligence Checklist Include?

General information

The primary objective of financial due diligence is to help businesses and organizations understand their financial situation. The intricate information gleaned at the end of the process will help a business make better investment decisions in the future and provide a foundation for forecasting the future financial situation of the business. The information required here includes everything from cash flow statements and technical collaboration to monthly management accounts and operational statistics.

THE ITEMS REQUIRED FOR FINANCIAL DUE DILIGENCE INCLUDE:

  • Audited financial statements of the company for the historical period
  • Reconciliation of the management accounts for the historical period
  • Investment agreements executed by the company
  • Copy of TAN, VAT, and other registration certificates
  • Cash flow statement
  • Details of any changes made in accounting policies
  • Working capital details for each quarter, and reasons for significant variation
  • Partnership agreements and technical collaborations
  • Overview of any changes in the shareholding pattern in the last two years
  • Monthly operational statistics
  • A detailed description of the business model of the company/organization
  • Revenue streams - current and future streams
  • A detailed description of the product and services offered

Revenue and Customers

Since the customers are the lifeblood of a business, it is critical that terms, as agreed upon by the customers, are reviewed and evaluated during the financial due diligence process. During the process, the revenue of the business should also be inspected.

ITEMS IN REVENUE AND CUSTOMERS DUE DILIGENCE INCLUDES:

  • Monthly and quarterly revenue
  • Revenue recognition policy
  • An up-to-date schedule of unbilled revenue with customers
  • Major commercial terms agreed with customers

Human Resources

A review of the company's Human Resource agreement is another integral part of the financial due diligence process as it brings to light contracts and financial decisions made by employees. Even more, it unveils the important details about employment agreement and compensation policies.

ITEMS IN HUMAN RESOURCES DUE DILIGENCE INCLUDES:

  • Details of retirement benefits and bonuses for senior management
  • Copies of the employment contracts for all employees
  • Attrition rates and staff turnover - valid reasons should be provided for the movement of employees
  • Details of salary increments
  • Details of key open positions in the business

Expenses

The financial due diligence process can go a long way in unveiling the various issues a firm may have. One way it does this is by analyzing the expenses made during the historical period. Consequently, documents related to insurance, accounts, and contracts will be needed during the process.

  • Ledger accounts of all revenue accounts and major expenses
  • Details of insurance cost
  • Breakdown of legal expenses, professional charges, and taxes
  • Quarterly marketing expenses
  • Quarterly technology and management expenses

Transaction and related parties

Inconsistencies in transaction and accounting details are one of the major causes of issues that can potentially shake the foundation of a business. A financial report acts as a mirror that reveals the shortcomings that may pose a risk to the growth of a business. Below are some documents that are needed:

  • Copies of all contracts with related parties
  • List of affiliated parties specifying the nature of the relationships with said parties and companies
  • Details of transactions (e.g. purchase, sales, and loans to or from)
  • Details of resources and facilities shared with other businesses
  • General ledger accounts of related parties
FAQ

Can I change requests in this checklist or add new?

Every M&A and due diligence process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary due diligence information?

This due diligence questionnaire was created by and for M&A professionals and includes a comprehensive starting point for any diligence process. Every deal is different, however, and may require additional requests or diligence areas.

Easily Collect Data Using this Template in DealRoom

This Financial due diligence template can be easily downloaded and utilized as just the Excel sheet. However, it is most effective when paired with DealRoom’s dynamic due diligence software. We offer a secure space to conveniently request, collect, and house data. Additionally, DealRoom offers analytics, security features, and customized help to streamline the process. We are confident that with DealRoom you can close deals up to 40% faster.

How to use the template with DealRoom:
  • Download the due diligence template from DealRoom’s website
  • Open a room within DealRoom
  • Go to the Requests tab and select “import”
  • Import the downloaded template

The Requests tab is automatically populated with the requests from the due diligence template. Users can begin assigning, adding to, and completing due diligence requests.

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