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

1. Company information

  • 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

  • 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 company have adequate financial resources to continue operations?

3. Products and services

  • 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

  • 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

  • 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

  • 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 are the legal risks associated with each IP asset?

7. Physical assets

  • 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

  • What are the laws and regulations that apply to the company and its industry?

    • Is the company subject to any environmental regulations?

  • Does the company need any permits or licenses in order to operate?

  • 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 the due diligence process with a clear idea of what you're up against will greatly increase your odds of success. Making sure you have answers to all of the questions above is a good place to start.

New Call-to-action