🔍 Due Diligence Guide
Due Diligence Checklist
Complete checklist covering 8 key areas and 120+ checkpoints for thorough business acquisition review
📅August 19, 2025
⏱️20 min read
✅120+ Checkpoints
📋Due Diligence Overview
8
Key Areas
Comprehensive Coverage
120+
Checkpoints
Detailed Items
6-12
Weeks Timeline
Typical Duration
🚨
Red Flags
Risk Indicators
🎯
Why is Due Diligence Critical?
Thorough due diligence uncovers hidden risks, validates assumptions, and provides the information needed to make informed acquisition decisions and negotiate favorable terms.
💰1. Financial Due Diligence
📊 Financial Statements Review
- ✓Audited financial statements (3-5 years)
- ✓Monthly management accounts (current year)
- ✓Cash flow statements and projections
- ✓Working capital analysis
- ✓Revenue recognition policies
- ✓Cost accounting methods
🔍 Financial Analysis
- ✓Profitability trends and margins
- ✓Revenue composition and seasonality
- ✓Debt structure and covenant compliance
- ✓Capital expenditure requirements
- ✓Tax compliance and provisions
- ✓Related party transactions
⚖️2. Legal Due Diligence
📋 Corporate Structure
- ✓Corporate charter and bylaws
- ✓Share ownership and transfer restrictions
- ✓Board resolutions and meeting minutes
- ✓Subsidiary and affiliate relationships
- ✓Powers of attorney and authorizations
⚖️ Legal Compliance
- ✓Litigation history and pending cases
- ✓Regulatory compliance status
- ✓Licenses and permits
- ✓Environmental compliance
- ✓Data protection and privacy compliance
🏢3. Commercial & 4. Operational Due Diligence
📈Commercial Review
- ✓Market position and competitive analysis
- ✓Customer concentration and contracts
- ✓Supplier relationships and dependencies
- ✓Sales pipeline and forecasting
- ✓Pricing strategy and margins
- ✓Distribution channels and partnerships
⚙️Operational Review
- ✓Manufacturing processes and capacity
- ✓Quality control and certifications
- ✓Supply chain and inventory management
- ✓Key performance indicators
- ✓Operational risks and mitigation
- ✓Scalability and growth potential
👥5. Management & 6. Human Resources
👔Management Review
- ✓Management team experience and track record
- ✓Organization structure and reporting
- ✓Key person dependency risks
- ✓Succession planning
- ✓Management information systems
- ✓Decision-making processes
👥HR & Employment
- ✓Employee contracts and terms
- ✓Compensation and benefits structure
- ✓Union agreements and labor relations
- ✓Employee turnover and retention
- ✓Training and development programs
- ✓Employment law compliance
💻7. Technology & 8. Tax
💻IT Systems Review
- ✓IT infrastructure and architecture
- ✓Software licenses and agreements
- ✓Cybersecurity policies and incidents
- ✓Data backup and disaster recovery
- ✓Technology roadmap and upgrades
- ✓IT support and maintenance
📊Tax Due Diligence
- ✓Tax returns and assessments (5 years)
- ✓Current and deferred tax liabilities
- ✓Transfer pricing documentation
- ✓Tax audits and disputes
- ✓Tax incentives and benefits
- ✓International tax planning structure
🚨Critical Red Flags
Warning Signs to Watch For
💰 Financial Red Flags
- ⚠️Declining revenue or profitability trends
- ⚠️Unusual accounting practices or adjustments
- ⚠️High customer concentration (>30%)
- ⚠️Cash flow inconsistent with profits
- ⚠️Significant related party transactions
⚖️ Operational Red Flags
- ⚠️Key person dependency
- ⚠️Pending litigation or regulatory issues
- ⚠️High employee turnover
- ⚠️Obsolete technology or systems
- ⚠️Environmental or compliance violations
⏰Due Diligence Timeline
Typical Timeline (6-12 Weeks)
1-2
Weeks 1-2: Setup & Planning
Team assembly, data room setup, initial document review
3-6
Weeks 3-6: Core Review
Financial, legal, commercial, and operational analysis
7-9
Weeks 7-9: Deep Dive
Detailed investigation of identified issues and risks
10-12
Weeks 10-12: Reporting & Closing
Final reports, risk assessment, and closing preparation
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