Financial Due Diligence Checklist Overview

The task of any due diligence process is to identify potential benefits and risks, checking whether there is a synergy to achieve from the future mergers and acquisitions. This is a complete analysis of the target company’s performance on the market during the last three-five years, screening its approaches to conducting commercial operations, IT and HR work, assets control, and so on is a must.

To ensure every essential detail is taken into account, special checklists are created. The profitability of such an agreement is impossible without testing accounting, finance, and treasure of the acquiring brand. The role of financial due diligence checklists is to simplify the process and not let important data to be omitted.

M&A Financial Due Diligence Checklist

In general terms, this documentation has a huge influence on the flow of negotiations between the acquiring and acquired companies. Logical order of presentation and well-thought-out analysis of data will help increase the value of the offer and make it more competitive. The following statements are a must-have:

  • Analysis of cash flow and restrictions — a key part is to review the income profits, credit-debt activities, one-time and non-operational expenses, as well as audited and monthly financial statements which consider operations for previous five years and twenty-four hours correspondingly.
  • Tax — among the files to submit, there are state and IRS tax exemption letters, information on recent and last three years’ returns, tax-exempt bond financing, and so on.
  • Capital/real estate — the target organization is supposed to present not only the list of partners, joint ventures, and subsidiaries, but also any related deeds, mortgages, records related to development of the company’s infrastructure.
  • Five-year plan — the sell side is to share their budget and business strategy for the current period and beyond.
  • Inventory method — this includes description and analysis of preferred inventory accounting approach, including current aging by category.
  • Third-party relations — the list should involve documentation on litigation or contingent liabilities, management letters (also known as auditors’ reports; they include recommendations on fixing the found deficiencies in the selected practices), accruals, balance sheets and off-balance sheet liabilities, etc.

Benefits of Using Templates

It doesn’t matter whether you are a professional team with a long history of success or just a startup who would like to gain more funds on development through M&A, the requirements to check quality are the same. Even though some aspects to highlight may differ from industry to industry, the wide-spread approach to verifying the worthiness of the target company data is unchangeable. One of the ways to add more airiness to your project is to apply templates.

With the help of financial due diligence checklist free or commercial-based templates, you can benefit with the following:

  • Integration with Excel — when it comes to finance, different charts, calculations, and formulas are natural, so this feature will allow hassle-free sharing of information between the parties in the intuitive-in-use format.
  • Integration with VDR — you are welcome to start collecting files on the topic and manipulate them smoother, saving remote access for interested parties.
  • Easy tracking — preferring customizable pre-made templates, your team will get an opportunity not just to record and track the results of work, but also to eliminate creating asymmetrical information.

The Bottom Line

Whether you choose to arrange documentation for due diligence on your own or apply to professionals for assistance, an advanced financial due diligence checklist is a way to take more control over the process and thus gain more powers to predict the deal’s result.