Due diligence is an important part of any transaction. The most common type of due diligence is Financial Due Diligence, and the tips below are intended to help you prepare for such a project, making the process as effective and efficient as possible.
Understanding the business
A Financial Due Diligence will generally involve obtaining an overview of the business operations including but not limited to:
• Establishing how the company has grown and evolved
• How management manage and monitor their roles and time
• Understanding the strategies and objective of the business
• Profiling the key members of management
• Gathering insights into the customer base including customer contracts, terms of trade, customer attrition and concentration
• Routes to market and different types of agreement with customers
• Understanding any fluctuations in revenue and a company’s revenue recognition policies
• Pricing strategies
• Cost profiles
• Staff costs and organisation structure
• Inventory management
• Accounting methods
You should be prepared to answer questions and provide evidence of this information through walkthroughs and supporting documents. By demonstrating confidence and robust responsiveness, you will gain credibility, giving the investor added comfort regarding the quality of the business.
