When preparing your business for sale, be prepared for a demanding, professionally approaching buyer. Below is a complete list of topics that you may need to check in the course of Due Diligence process.
Financial information about the company
- Last 3 years annual and quarterly financial information, including balance sheets, cash flows, income statements and footnotes.
- Planned projects versus end results.
- Management financial records.
- Breakdown of sales and gross profits by: geography, channel and product type.
- Any existing backlog by customer.
- Existing accounts receivable aging schedule.
- Next three years quarterly financial projections.
- Revenue by channel, customers and product type.
- Major growth prospects and drivers.
- Business predictability analysis.
- Risk associated with foreign operations: government instability, exchange rate fluctuation.
- Company and industry pricing policies.
- Different economic scenarios based on price and market fluctuations.
- Explanation of working capital arrangements, depreciation and projected capital expenditures.
- Assumption of external financing arrangement.
- Risk management plan
- Current outstanding shares.
- List of all stockholders with company shareholdings, warrants, options, or notes.
- Schedule of all warrants, rights, options.
- Summary of all bank loans / debt instruments with key terms and conditions.
- Liabilities (including off-balance-sheet items).
Other financial information
- Summary of current state, federal and any foreign tax positions (including net operating loss carry-forwards).
- General accounting policies, such as revenue recognition.
- Schedule of financing history for warrants, equity and debt (dollar investment, investors, percentage ownership, implied valuation, date and current basis for each round).
Products (description of each product line)
- Major applications and customers.
- Projected and historical growth rates.
- Market share analysis.
- Nature and speed of technological change (analysis).
- Timing of product enhancements, new products.
- Profitability and cost structure analysis.
- List of past 3 years top 15 customers and current year’s up-to-date contact information (name and contact name, address, phone number, timing of purchase and product owned).
- A list of strategic relationships (name and contact name, phone number, marketing agreements and revenue contribution).
- Description of any important severed relationships within the last 2 years (name and contact name, phone number).
- List of past 3 years top 10 suppliers and current year’s up-to-date contact information. (name and contact name, phone number, supplier agreements and purchase amounts).
- Competition (description of the competitive landscape).
- Market position of the competition, related strengths and weakness (SWOT).
- Basis of competition (service, distribution, technology, price).
Marketing, sales and distribution (strategy and implementation)
- Discussion of national and any international distribution channels.
- Company’s position and its products.
- Marketing risks and opportunities.
- Description of marketing packages and examples of recent product/public relations/marketing/ media information on the company.
- Trends and status of relationships.
- Prospects of future development and growth.
- Pipeline product analysis.
Research and development
- Strategy, key personnel and major activities.
- New product pipeline (timing and status, cost of development, risks and critical technology necessary for implementation).
Management and personnel
- Organization chart, project and historical headcount by location and function.
- Biographies of senior management, including service with the company, year in current position, employment history and age.
- Compensation arrangements: benefit plans, summaries of key employment agreements.
- Any significant employee problems, present or past.
- Personal data for the last 2 years and benefit plans.
Legal and related matters
- Any pending lawsuits against the company (brief history, status, anticipated outcome, detail on claimant and claimed damages, name of the company’s counsel).
- Pending lawsuits initiated by the company (brief history, status, anticipated outcome, detail on defendant and claimed damages, name of the company’s counsel).
- Employee safety and environmental liability issues (safety precautions and new regulations and their consequences).
- List of trademarks, copyrights, licenses and material-patents (issued and pending).
- Summary of any material exposures or insurance coverage.
- Summary of material contracts and any history of the SEC or other regulatory agency related problem.