Due Diligence Documentation

Due Diligence is the process of evaluating a prospective business decision by getting information about the financial, legal, and other material (important) state of the other party.

Due Diligence Category Documentation Task Owner Status
Business Plan, Corporate Structure, Financing
Business plan Current five-year business plan    
  Prior business plan    
Corporate organization Articles of incorporation    
  Recent changes in corporate structure    
  Parent, subsidiaries, and affiliates    
  Shareholders’ agreements    
Shareholders Number of outstanding shares    
  Stock option plan    
  Samples of common and preferred stock certificates, debentures, and other outstanding securities    
  Warrants, options, and other rights to acquire equity securities    
  Current shareholders, including number of shares owned, dates that shares were acquired, considerations received, and contact information    
  Relevant private placement memoranda and other offering circulars    
Lenders Convertible, senior, or other debt financing    
  Bank lines of credit, loan agreements, or guarantees    
  Loan defaults or expected defaults    
Recent corporate transactions Description and rationale for each transaction    
  Purchase and sale agreements    
Regulations Business licenses    
  Environmental permits    
  Workers’ health and safety permits    

Due Diligence Category Documentation Task Owner Status
Marketing, Products, Sales, Service
Market analysis Competition by product line (include contact details, market size, market share, and competitive advantages and disadvantages)    
  Industry and market research    
  Trade publications and contact information    
Marketing, products, sales, and service Features and benefits of product offerings    
  Product rollout schedule and product life cycle    
  Copies of patents and trademarks filed or obtained    
  Pricing strategy of product or service    
  Descriptions of existing partners and joint ventures    
  Distribution channels    
  Promotion tactics    
  Top-10 customers by product line and total installed base    
  Sales and marketing presentations    
  Product catalogs and brochures    
  Press releases or articles written about the organization    
  Professional affiliations    
  Customer service strategy    
Contracts Major contracts by product line    
  Support/maintenance contracts    
  Warranties and guarantees    
  Other customer-related contracts    
  Supplier contracts    
Technology Technology strategy    
  Overall technical capabilities    
  Technical competitive advantages and weaknesses    
  Copies of user documentation by product (current and historical)    
  Copies of technical requirements, code strategy by product (current and historical)    
  Development process    

Due Diligence Category Documentation Task Owner Status
Financial and Operations
Financial statements Three years of historical statements:

  • Income statement (P&L)
  • Balance sheet
  • Statement of cash flows
  • Statement of shareholders’ equity
  CYTD statements    
  Most recent five-year projections (pro formas)    
  Monthly sales projections and sales pipeline over next 18 months, including assumptions    
Key financial ratios Liquidity    
  Operating efficiency    
  Return to investors    
Taxes and audits Historical tax rate    
  Federal and state net operating loss carryforwards    
  Tax returns    
Receivables Accounts receivable turnover    
  Accounts receivable aging schedule    
  Accounts receivable control and credit policy    
  Accounts receivable seasonality    
  Most recent five-year projections (pro formas)    
Capital expenditures Last five years    
  Five-year gross projection    
  Detailed priority list    
Equipment List    
  Depreciation method    
  Liquidation value    
  Replacement value    
Leases Lenders    
  Interest rate    
  Payment schedule    
Litigation Current litigation and potential damages    
  Potential litigation and potential damages    
Insurance Property    
  Workers’ compensation    
Information systems Description of infrastructure    
  Security layers    
  Backup strategy    

Due Diligence Category Documentation Task Owner Status
Human Resources
Management Organizational chart (including number of employees by department)    
  Resumes for key managers and key employees    
  Management stock incentives    
Compensation and benefits Cash compensation per employee (including salary, bonuses, commissions)    
  Summary of standard employee benefits (such as medical insurance, disability insurance, vacation)    
  Copies of 401(k) and other qualified pension and profit-sharing plans    
Other Ownership interest    
  Employment contracts    
  Performance evaluation criteria    
  Historical tax rate    
  Material transactions with insiders or associates of insiders    
References Executives: Three references for each    
  Attorney: All legal relationships    
  All directors and significant affiliates; include brief biographies    
  Investors: List all individuals and institutional investors    
  Customers: List of top 10    
  Strategic partners    
  Consultants, freelance workers (current and historical)    
  Accountants (current and historical)    
  Bankers and creditors (current and historical)    
  Associations: All industry associations in which company and management are affiliated or active    

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