Checklist of due diligence items beyond LOI stage
July 30, 2019
by a searcher from Northwestern University - Kellogg School of Management in Evanston, IL, USA
Is there any comprehensive list out there that outlines the legal, financial and other types of due diligence topics to evaluate companies you just signed an LOI with? Granted a significant portion of that will be company/industry specific, but I am just curious about the general ones. FYI the company in question is a healthcare service provider. Thanks.
in West Palm Beach, FL, USA
Financials
Ask for the company’s audited financial statements. Request balance sheets, income statements, and cash flow statements, as well as business tax returns for the past three to five years. You and your accountant should review them with the following in mind:
Is the business collecting its accounts receivable in a timely manner?How much bad debt does the business write off each year?Is the business paying its debts in a timely manner?What is the business’s profit margin?Does the company have any outstanding liens?
Legal
Ask for copies of the business’s professional and consulting agreements; insurance policies; licenses and permits; any documents related to intellectual property, such as patents or trademarks; and any documents related to lawsuits the company is involved in. You and your attorney should review them with the following in mind:
Are the agreements enforceable?Does the company have the rights to its intellectual property?Is the business adequately insured?Are the company’s licenses and permits current?Is the company involved in any litigation, and if so, what are the potential risks, costs, and damages?Is the business in compliance?Is the business structured properly for your growth plans, or will you need to change its structure?Will you need to buy out shareholders, and if so, what will that cost?
Employees
Request organizational charts, employee handbooks, employment agreements, wage and salary information, benefits plans, noncompete agreements, and confidentiality agreements. Review them with your attorney, keeping in mind:
Do any employee policies put the business at risk of lawsuits?Are there any ongoing grievances with employees?Are employees attempting to unionize, or is a third party trying to unionize them?Business structure: If the business is a corporation, ask for a copy of its corporate charter and bylaws as well as all minutes of meetings held with the board of directors and/or shareholders.
Operations
Ask for a list of customers, lists of suppliers and vendors, and an operations manual. Review this information while considering:
Does the business have adequate inventory systems in place?Is the company’s supply chain diversified so that the business isn’t overly reliant on one supplier?Is the company’s customer base diversified and growing?Does the company have necessary equipment and infrastructure in place for continued growth?
from Clemson University in Raleigh, NC, USA