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Due diligence is a critical part of any M&A deal. By thoroughly preparing for the M&A process and knowing what to expect during due diligence, including the questions you should be ready to answer, you’ll stand a much better chance of a successful and profitable transaction.

But what types of questions are typically asked during the due diligence process? Failing to appear organized and properly prepared for the process can create concerns for the buyer, potentially putting the deal and your business at risk.

Any due diligence process should begin with basic organizational questions about your company and its finances. Depending on your M&A partner, there may be various other types of questions asked as well.

This due diligence checklist will guide you through each step of the process, listing some of the most commonly asked questions during due diligence.

Due Diligence Checklist

Due diligence is a comprehensive evaluation of a business's operations, finances, legal standing, and other relevant areas. To ensure a thorough assessment, this checklist of questions can help guide the process and ensure that no critical areas are overlooked.

1. Company information

This should be the first bullet in your due diligence checklist because this information will provide you with insights into the business’s decision-making processes, strategic direction, management style, priorities, labor relations, and potential issues.

  • Who owns the company?

  • What is the company’s organizational structure?

  • Who are the company’s shareholders?

    • What percentage of the company does each shareholder own?

  • What are the company’s articles of incorporation?

  • Where is the company’s certificate of good standing from the state in which the business is registered?

  • What are the company bylaws?

  • Where are the company’s most recent annual reports and minutes from board meetings?

  • Who is on the company’s senior management team, including job title, salary, and years in the position?

  • What are the company’s employee benefits?

  • Are the company’s employees unionized?

    • If so, what is their contract?

2. Finances

Obtaining a company credit report, as well as material related to a company's tax and other financial statements, is crucial for conducting proper due diligence. This information sheds light on a business's financial health, its ability to generate profits, and potential risks and liabilities that may impact future operations.

  • Where are the company’s quarterly and annual financial statements from the past several years?
    • This includes the company’s balance sheets, accounts receivable, accounts payable, and income statements.
  • Where are the company’s federal, state, local, and foreign tax returns from the past several years?
  • How often are the company’s financial statements and tax returns audited?
  • What are the company’s itemized business expenses?
  • What is the company’s gross profit margin?
    • Is it increasing or decreasing?
  • How much debt is the company carrying?
  • What capital expenditures does the company plan to make in the near future?
  • What are the company’s current financial models and forecasts for future business activity?
    • Does the business have adequate financial resources to continue operations?

3. Products and services

Your due diligence checklist should cover questions regarding information about products and services. Not only will it help you assess their status, but you’ll learn who their vendors and suppliers are. This will allow you to evaluate the competitiveness of the business. Additionally, identifying a business’s main competitors and what they offer is important in determining the future success of the business.

  • What are the company’s current and future products and services?

    • How do these compare to those of the company’s competitors?

  • Who are the company’s most important competitors, both now and in the future?

    • What are their strengths and weaknesses?

  • What are the costs and profit margins of the company’s products and services?

  • Who are the company’s current vendors and suppliers?

4. Customers

Examining a company's customer base and business locations is important as it provides insights into the company's market reach and potential areas for growth. This information can help identify any issues and opportunities or guide strategic decisions.

  • In which locations (states and countries) does the company do business?

  • What is the company’s customer base?

    • If a B2B company, who are the company’s most important customers?

  • What are the company’s current and future marketing campaigns?

5. Technology assets

Information about technology assets is necessary for assessing a business’s potential to innovate and stay competitive in the market. By evaluating a business’s technology assets, investors can make informed decisions regarding their investment in the business.

  • What software and hardware does the company use?

    • What are the currently active software licenses?

  • How much is each IT asset utilized?

  • How old is the company’s hardware?

  • Does the company outsource any of its IT responsibilities?

  • What is the company’s disaster recovery plan for data breaches or data loss?

6. IP assets

Intellectual property assets are another critical part of due diligence. Understanding who owns certain IP rights, as well as how IP is protected, will help you assess the legal risks associated with a business’s IP assets.

  • What is the company’s intellectual property, and who owns this IP?

    • Does the company own any patents, copyrights, trademarks, or trade secrets?

  • How does the company protect its IP?

  • How much revenue does each IP asset generate?

  • What potential legal liabilities does each IP asset pose to the business?

7. Physical assets

In order to gain a comprehensive understanding of a business, it's essential to examine its physical assets, including any real estate holdings, inventory, and equipment. By gathering information about these aspects, a clearer picture of the company's operations can be obtained.

  • What are the company’s real estate assets?

    • Does the company have real estate deeds, leases, or mortgages?

  • What inventory and equipment does the company have on hand?

8. Legal issues

Legal due diligence provides information about the company's policies and procedures. This includes an examination of the company's history of legal and regulatory compliance, as well as any related legal risks or liabilities.

  • What are the laws and regulations that apply to the business and its industry?
    • Is the company subject to any environmental regulations?
  • Does the company need any permits or licenses in order to run a business?
  • What is the company’s past, current, and future litigation history?
    • Does the company have any injunctions or settlements as a result of this litigation?
  • What are the company’s insurance policies?
    • This may include professional liability insurance, workers’ compensation insurance, vehicle insurance, commercial property insurance, key person life insurance, and intellectual property & patent insurance.
  • Are there potential antitrust concerns that would arise as a result of the merger?

When you're preparing to sell your business, going into due diligence with a clear idea of what you're up against will greatly increase your odds of success. Making sure you have the answers to all of the questions in this due diligence checklist is a good place to start.

During the due diligence process, it is crucial to ensure the security and confidentiality of sensitive information. One way to achieve this is by utilizing a secure virtual data room  (aka virtual deal room). They offer a secure and controlled environment where buyers, sellers, and advisors can securely review, analyze, and exchange confidential documents.

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