Complete List of 50+ Due Diligence Documents [+ Checklist]

When selling your business, there are several advantages to having first-class due diligence documents prepared in advance.

The mere process of putting these documents together will give you a good overview of your own business and where some of its potential weaknesses lie. As long as the business hasn’t been sold, you can work towards strengthening those areas that your due diligence documents suggest might need reinforcing.

On the buyer side, receiving these documents in a timely and orderly fashion speeds up the M&A process, quickly providing reassurance that what’s under the hood checks out with what the company’s marketing documents show. Above all, it’s the best signaling mechanism a company has to show that it’s worth acquiring.

What are due diligence documents?

So, which documents should be collected for due diligence?

1. Legal Due Diligence Documents

  • Local/state/federal business licenses
  • Occupational license
  • Building permits
  • Zonal and land use permits
  • Tax registration
  • Power of attorney
  • Previous or outstanding legal cases

2. Financial Due Diligence Documents

  • Audited financial statements (at least 3 years)
  • Auditor’s correspondence for the last five years
  • Copies of all loans and credit agreements
  • Details of company investments (bonds, marketable securities, etc.)
  • Capital structure
  • Projections, capital budgets, and strategic plans
  • Up to date tax and pension liabilities
  • Details on when contracts and leases are renewed and whether the terms change
  • Details of stockholders (percentage holdings, voting rights, etc.)
  • Foreign exchange reserves
  • List of unrecorded liabilities
  • List of collateral for debt
  • Details of owner withdrawals (if any)
  • Revenue by client (if possible)
  • Gross margins analysis
  • Fixed/variable expenses analysis
  • List of non-operational expenses
  • General ledger

3. Sales and Marketing Due Diligence Documents

  • Marketing/sales coordination protocols
  • Revenue listed by customer
  • Exhibit relationship between marketing expense and revenue growth
  • Details of existing sales contracts (and when they expire)
  • List of top 10 suppliers
  • Sales reports by category of product or service
  • Details of credit terms with customers
  • Current market share (if possible)
  • Percentage of sales owing to each sales channel (e.g. online, offline, direct sales, etc.)

4. Human Resources Due Diligence Documents

  • Employee rules of conduct handbook and safety policies
  • Detail past employee disputes (if any)
  • Detail employee and independent contractor terms of employment
  • Detail updated employee resumes
  • Outline policy of working with labor union (if any)
  • Outline training conducted with existing employees
  • Worker’s compensation/unemployment claims history
  • Outline policy of bonuses, incentives, commissions and deferred commissions
  • Detail policies for sick days, paid holidays, paid vacations and overtime pay

5. Property, Plant, and Equipment Due Diligence Documents

  • Real estate
  • Technology
  • Inventory

6. Contract Due Diligence Documents

  • Supplier contracts
  • Joint venture/partnership agreements
  • Settlement agreements
  • Franchising agreements
  • Accounts receivable schedule
  • Accounts payable schedule
  • Equipment leases
  • Non-compete agreements
  • Employee contacts
  • Loans, credits, and guarantees agreements

7. Intellectual Property Due Diligence Documents

  • IP claims and litigation
  • Domain names
  • Issued patents
  • Patent applications
  • Design patents
  • Design patent applications
  • Industrial designs
  • Industrial design applications
  • Liens on intellectual property
  • Copyrights
  • Licenses
  • Licensing agreements
  • Trademarks
  • Agreements/documents regarding ownership and rights of use of advertising copy, trade-marks, logos, and slogans
  • Organizational Chart
  • Shareholders/percentages owned
  • Voting trusts, subscriptions, calls, puts, options, and convertible securities agreements
  • State of incorporation status reports for the last three years
  • Assumed names
  • Company minutes book
  • Company bylaws and amendments
  • List of the states and countries where the company has employees, owns assets, leases assets, and does business
  • The Articles of Incorporation/amendments.
  • Annual reports for the last three years.
  • A Certificate of Good Standing from each Secretary of State where the company conducts business

How to Find a Complete Due Diligence Checklist for Your Deal

Every deal is different, therefore no two due diligence checklists will be identical. The above list is just a general guideline of some materials collected during due diligence. For your own process, check with your team if you have conducted similar deals in the past to begin your checklist.

For example, one deal may need the following categories — administrative, financial, asset, human resources, environmental, intellectual property, taxes, and legal.

How to collect due diligence documents

If your company has high-quality CRM, ERP or BI systems, they can be used to bring together all kinds of useful data used in due diligence. The feedback provided by these systems also gives reassurance to potential buyers that there’s no human error in the data they’ve received. Furthermore, as we never tire of mentioning, information on your firm is as useful to you as it is to a buyer of a firm, and should be analyzed on an ongoing basis in any case.

Collecting the due diligence documents should be done in a systematic manner that allows you to see where documents can be obtained, whether more should be added, progress reports on their collection and more. We suggest putting together a list in a table format structured similarly to the one provided below:

Keeping structured records like this in a spreadsheet also allows you to filter for results faster when buyers ask for documents. Whatever headings you opt for, the ‘last updated’ column is particularly important, allowing you to see at a glance when due diligence documents were last updated and thus, how likely they are to be relevant.

When should due diligence documents be provided to the buyer?

  • When should due diligence documents be provided to the buyer?
  • Can this be done too quickly?

Absolutely. Unfortunately, the world of M&A is full of tire kickers who enjoy finding out about businesses simply to see what’s out there. Asking you for due diligence documents rarely costs them anything (hence the reason why some bankers push for charging buyers for due diligence).

The best policy is to begin by providing audited financial statements — a great signaling device for any owner looking to sell their business that their ship is in order — and send over documents as they’re requested by the buyer, who should have signed an NDA in advance. The more buyers you speak to, the more likely it is that you’ll be able to anticipate what documents they’re looking for in advance, making the process even more efficient.

How to collect & share due diligence documents easily

You can download one of DealRoom’s free M&A templates, or upload their own template, into the room. From there, you and your team can create due diligence requests that correspond with every document you need to collect. For more information about how to use DealRoom for this process, check out DealRoom for due diligence.

Originally published at https://dealroom.net.