Preparing for the Due Diligence Review

1. Is your financial information accurate?
2. What is the condition of your assets, including trading assets (inventory) and fixed assets (real estate, equipment, buildings)?
3. What is the current outlook for your industry?
4. Who is your competition and how do you compare to them?
5. Is your marketing plan appropriate for current and future activities?
6. Is your documentation in order, not just with vendors and customers, but your corporate documents as well?

   Now that you have a sense of what you will review, what information do you need to conduct the due diligence process?  Here’s a list of the primary documents you should have; you can expand the list as appropriate given the scope of your review:

1. Three years of financial statements and the most recent interim financial statement.
2. Copies of all contracts with vendors and customers. This includes lease agreements for rent and office equipment.
3. Licensee and dealer agreements.
4. Detailed list of all assets and liabilities.
5. All supporting documentation for intellectual property such as patents and trademarks.
6. All corporate documents, including certificate of incorporation, articles of incorporation, stockholder meeting minutes, and stock certificates.
7. Information on any pending legal matters.
8. Copies of insurance policies.

   Where do you go to get the information you need?  What about the time when you are trying to obtain financing or sell your company? The funder or buyer will have their own due diligence team that will contact certain sources of information.  It is helpful for you to know what sources of information will be contacted by external due diligence teams, so you can know beforehand what these information sources will report.  Here’s a list of people that can provide information needed for due diligence:

1. Executive management.
2. Operations / Legal / Accounting managers.
3. Consultants.
4. External attorneys and accountants.
5. Customers, both current and former.
6. Vendors, both current and former.
7. Competitors.
8. Bankers.
9. Former employees and shareholders.
10. Government agencies.