Due diligence is a crucial element of any business deal, investment or partnership. It’s a comprehensive examination of all aspects of a firm including its financial records, its compliance with laws and the potential risks.
Creating and using a due diligence checklist helps to facilitate conversations, swiftly find obstacles to M&A transactions, and enables the stakeholders to concentrate on strategy structure, execution and structure. A due diligence checklist can help reduce risk by ensuring that all parties are familiar with the scope of the investigation and the required documentation.
The type of documentation included in due diligence requests will differ based on the nature of the transaction. All M&A due-diligence documents should contain certain essential elements:
Complete financial reports for the past three years are required in the majority of M&A due diligence reviews. These documents can help give a clear view of the company’s current financial condition and help to identify opportunities to grow.
Other things to take into consideration are the target’s financial obligations and its capital structure. Other areas to be considered could be a review of internal processes including supply chain, technology infrastructure and management team.
A due diligence checklist must also include a thorough review of the target company’s environmental practices, health and safety. This includes any regulatory violations. It should also include the company’s policies on intellectual property as well as how it will deal with a data breach. In addition, a due diligence assessment should examine the company’s disaster recovery strategy and contingency measures.
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