Due Diligence Checklist: How to Make the Best One Possible

Young businessman checking mark on checklist with marker. IsolatWhen corporations merge, or two people sign contracts, or even when a house goes into the process of a sale, there is always a process of due diligence that should be followed. Off the bat the term sounds heavily legalese; don’t let that intimidate you. Due diligence is just a fancy way of saying: do your homework. What kind of work is it? If its corporate check out Udemy’s course on corporate valuation. There you will find helpful training in the art of business acumen.

Why does due diligence matter? Would you buy a car without reading up on the specs? The answer is: most likely not. In the world of business, law, or real estate doing your homework means you’ve done all your background checking; you’ve done all your research; you’ve figured out everything that needs to be understood. Nothing is left up to chance… and nothing is out of your frame of reference. Due diligence is an important step so that you, your business, or your clients can sleep easily knowing that everything is ‘up to snuff.’ It is an essential standard of care and it is the bedrock of all contract negotiations and mergers. If you want more information on what this entails you could check out Udemy’s courses on Corporate Finance.

What Kind of Information Will You Need To Gather? 

So what kind of information needs to be accrued in the act of due diligence? Well actually, quite a bit. Because of this, it is very helpful to keep a checklist of what is required. This way you can work your through it, taking your time and avoid forgetting anything. Omissions in due diligence can be absolutely fatal to the deal at hand.

A good due diligence checklist will always start with financial information. Monetary figures are the backbone of a deal. In order to truly understand the company you are buying (or that is buying you) as well as the overall deal, you need to become well acquainted with the financial info at hand. Make sure you seek out annual and quarterly information for the last three years. That is very important. Look into the past will help you get a clearer picture. This can include income statements, balance sheets, cash flows and footnotes. You’ll also want to look at P and L’s, actuals, and all management reports as well.

Investigate the company’s financial projections. This should for the year at hand as well as for the next three fiscal years. What were their plans? What were the revenue streams and how did they plan to grow them? Again, get full income statements as well as predictability charts, risk assessments, company pricing policies, and full explanations of capital expenditures.

If there are shareholders, stockholders, options, warrantees or notes, you will need to find out about them. Track down any shares outstanding. Get a schedule of all options and warrants and other potentially dilative securities. Get summaries of all debt and the banks holding those debts.

Lastly get a summary of all current federal, state, and foreign tax positions. Spend time with the company accountant to better understand the policies of the department. Track down a schedule of financing history as well. All of these things will help you be prepared for any unexpected turns in policy or negotiations.

Other Information

Other categories of due diligence can be created for the checklist. They can include product breakdowns, customer information, competition filings, marketing and sales distribution, management and personnel records, legal information, and more. Any one of these topics has several sub categories. Take a look at The Full Bundle course on modeling and valuation from Udemy. It will show you how to use excel and modeling for better diligence tactics. If you are in real estate consider taking the real estate investing, cash flow, and due diligence course. There you will learn all you need to know about due diligence in the real estate market.

What to Expect With Due Diligence

Due Diligence is a longstanding part of business, legal, and real estate negotiations. Asking for this information should not be surprising to anyone involved in the company. In fact if someone were to react poorly it might be a larger tip off concerning the validity of the company at hand. Remember, however, that this information is very sensitive and should be treated with care. That being said, check out this acquisition strategy on the Udemy blog for a better understanding of what can be accomplished during a corporate merger. Or you can check out Udemy’s impressive corporate valuation course and learn how the pros perform their due diligence to make sound business moves.