Financial Due Diligence Checklist

Financial due diligence is a delicate procedure to determine the stability of a company's assets and evaluate financial health. In this checklist, you'll find key tasks to perform during that process.

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.
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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.

Financial Due Diligence Checklist

Financial due diligence is a delicate procedure to determine the stability of a company's assets and evaluate financial health. In this checklist, you'll find key tasks to perform during that process.

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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

What Is Due Diligence?

Due diligence is a critical aspect of any deal that begins very early in the process and can continue right up until closing. During due diligence, the potential buyer asks questions and requests documentation from the seller that helps the buyer understand the target company and its business. These requests are usually general to start and become more specific as the buyer develops a greater understanding of the target. Buyers use the information provided by the seller to evaluate the opportunities and risks associated with the potential transaction. It is important for sellers to stay organized throughout the process. Buyers often submit thorough, detailed request lists that require input from numerous members of the seller’s deal team.

What is a due diligence checklist?

As the name implies, a due diligence request list is a list of questions and requests for information and documentation that a buyer submits to a seller in order to learn about the target company, its business and its operations. The initial diligence request list tends to be broad and typically includes an extensive list of questions covering a wide range of subjects. This allows the buyer to gain a broad understanding of the target company and identify key issues that can be investigated and considered more closely. Because every deal is different, due diligence request lists have to be tailored to meet the needs of the buyer and address the unique circumstances of your transaction.
However, there is a variety of fundamental requests that are relevant in most deals. These are the types of requests that our templates are designed to address.

What Questions Does the Master Due Diligence Questionnaire Include?

As the name implies, a due diligence request list is a list of questions and requests for information and documentation that a buyer submits to a seller in order to learn about the target company, its business and its operations. The initial diligence request list tends to be broad and typically includes an extensive list of questions covering a wide range of subjects. This allows the buyer to gain a broad understanding of the target company and identify key issues that can be investigated and considered more closely. Because every deal is different, due diligence request lists have to be tailored to meet the needs of the buyer and address the unique circumstances of your transaction.
However, there is a variety of fundamental requests that are relevant in most deals. These are the types of requests that our templates are designed to address.

Key considerations when using our m&a due diligence template

Our templates are drafted to provide an inclusive and wide-ranging list of initial due diligence requests. However, the templates, as well as the information contained therein, are not legal advice. They are not complete, and they are not specific to your transaction. The templates are designed to elicit general information from the seller that will provide the buyer with a broad overview of the target and it’s business and operations. You should review any template before using it, and it may need to be modified to ensure that it is suitable and relevant to your circumstances. Information provided by the seller will likely trigger additional questions that focus on specific aspects of the target’s business and issues identified during the due diligence process.

Are the requests in the template comprehensive?

No. Our Due Diligence Checklist is drafted to include typical requests that are relevant in most transactions. However, every deal and every target company is unique. Before utilizing any template, it is important that you review it with the help of your legal and other professional advisors to ensure that the requests are complete and tailored to the specific circumstances of your deal.

How to use the template with Dealroom

  • Start 14-day Free Trial of DealRoom and sign-up
  • Select a Master Due Diligence Template while creating a new room
  • Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

Can I change requests in this checklist or add new?

Every M&A 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 integration information?

This checklist was created by and for M&A professionals. It includes a comprehensive starting point for the integration process. However, every deal is different and may require additional requirements and tasks.

How to use this template with DealRoom?

  • Start 14-day Free Trial of DealRoom and sign-up
  • Select an Integration Template while creating a new workspace
  • Start planning, assigning, adding to, and completing integration tasks. The Requests tab is automatically populated with the tasks from the integration template.

Key considerations when using our m&a due diligence template

Our templates are drafted to provide an inclusive and wide-ranging list of initial due diligence requests. However, the templates, as well as the information contained therein, are not legal advice. They are not complete, and they are not specific to your transaction. The templates are designed to elicit general information from the seller that will provide the buyer with a broad overview of the target and it’s business and operations. You should review any template before using it, and it may need to be modified to ensure that it is suitable and relevant to your circumstances. Information provided by the seller will likely trigger additional questions that focus on specific aspects of the target’s business and issues identified during the due diligence process.

Are the requests in the template comprehensive?

No. Our Due Diligence Checklist is drafted to include typical requests that are relevant in most transactions. However, every deal and every target company is unique. Before utilizing any template, it is important that you review it with the help of your legal and other professional advisors to ensure that the requests are complete and tailored to the specific circumstances of your deal.

How to use the template with Dealroom

  • Start 14-day Free Trial of DealRoom and sign-up
  • Select a Master Due Diligence Template while creating a new room
  • Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

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