Due Diligence Checklist

What is a due diligence checklist?

Investors, business owners and consultants use a due diligence check list when analysing a company or organisation they wish to acquire either through purchase, merger or another method. This type of checklist helps to ensure that the final decision is based on a thorough examination of all aspects of the business. It is also used to identify red flags and determine whether the current value of a company is a sound investment.

This article informs about:

1. Where frequent red flags occur during due diligence

2. The 3 main types of due diligence checklists

3. A powerful mobile tool for conducting an acquisition due diligence checklist

Where red flags are frequently found when filling out an M&A due diligence checklist

Investors and consultants must examine key aspects of a company to determine whether the investment is worthwhile. This includes finding red flags that may harm profitability. The following key aspects should not be missing from any due diligence checklist template:

1. Company

1. Is the company open to the exchange of requested company information or were there any reservations?
2. Does the company comply with legal requirements?

2. Products and services offered

1. What does the company sell?
2. Do the products and services meet the legal criteria and required certifications?
3. What do the product development and manufacturing processes look like?

3. Finance

1. The review of all financial documents, including all debts acquired and taxes paid.
2. Also review compelling reasons to conduct further investigations and be prudent in how the company manages its finances.
3. Does the company show transparency in granting access to financial documents?

4. Employees

1. How are the employees treated in the company?
2. How competitive is the benefits package for employees?
3. What is the professional career and reputation of the managers?
4. Were there any legal steps in the past that were taken by or against employees?

5. Viewing

Public perception can affect the profitability of a company. For due diligence, it is important that the due diligence template includes what the media, competitors and the target market have to say about the company.

1. What about corporate social responsibility?
2. What is the general reputation of the company in the industry?
3. Are there any legal issues or environmental concerns raised against the company?

The 3 main types of due diligence checklists

There are three types of due diligence that can be covered by a checklist, namely 1) legal, 2) financial and 3) commercial. All help to provide the right information to thoroughly evaluate the business, assets, capabilities and financial performance of the company of interest.

1. legal due diligence

The legal due diligence is the examination and revision of legal documents and contracts. This includes in a due diligence checklist the examination of areas such as:

• Legal structure
• Real estate
• Contracts
• Loans
• Employment
• Pending litigation

2. Financial due diligence

Financial due diligence includes the verification and evaluation of the company’s financial documents. In a due diligence checklist it covers areas such as:

• Line
• Income
• Assets
• Cash flow
• Liabilities
• Debts

3. Commercial due diligence

Commercial due diligence is the fundamental understanding and investigation of the market in which the target company operates. This includes activities such as discussions with customers, analysis of the business plan and assessment of competitors, that can be all checked with a due diligence checklist.

Lumiform as a tool for a due diligence checklist

For due diligence, a large number of company documents must be reviewed in the shortest possible time in order to be able to assess the viability of a company for an investment, merger or takeover. Lumiform, the powerful, mobile auditing application, helps entrepreneurs and consultants conduct effective due diligence by providing the following benefits:

1. Convenient highlighting of results

• Photograph with the mobile device to highlight the results during due diligence.
• Make brief notes on certain items on the due diligence checklist, which can be easily reviewed when preparing the due diligence report.

2. Digital recording

• No more paper-based checklists and illegible handwritten notes that can be lost or damaged.
• Easily exchange paperless recordings digitally.

3. Secure information

• Secure data storage, so there is no need to fear data leakage or unauthorized access to data.
• Only authorized persons can access information.

4. Continuity

• Only one application for the entire duration of a due diligence.
• Always pick up where you left off and constantly update the results in your due diligence checklist.
• If required, integrate Lumiform into other platforms.