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> Buying a business Due Diligence
Buying a business Due Diligence
Financial Due Diligence
Review financial statements (last 3-5 years)
Analyze cash flow statements
Verify tax returns and compliance
Assess accounts receivable and payable
Evaluate inventory valuation and turnover
Review any outstanding debts or obligations
Here are some additional steps that could be included in the Financial Due Diligence section of a New Buying a Business Due Diligence checklist
Assess the quality of earnings (adjusted EBITDA analysis)
Review projections and financial forecasts
Analyze revenue recognition policies and practices
Evaluate capital expenditure (CapEx) history and future needs
Investigate any off-balance-sheet liabilities or assets
Examine any related party transactions and their implications
Review employee compensation and benefit obligations
Assess the financial impact of any pending litigation or disputes
Analyze financial ratios (liquidity, profitability, leverage) for trends and benchmarks
Verify compliance with debt covenants and loan agreements
Review insurance policies and claims history for potential liabilities
Conduct a sensitivity analysis on key financial drivers (e.g., sales growth, cost of goods sold)
Assess the impact of economic, market, and industry conditions on financial performance
Operational Due Diligence
Assess business operations and processes
Review employee contracts and organizational structure
Analyze supplier and vendor agreements
Evaluate customer contracts and retention rates
Inspect equipment and facilities
Here are some additional steps that could be included in the Operational Due Diligence section of a New Buying a Business Due Diligence checklist
Assess the efficiency and effectiveness of current workflows and processes
Evaluate the company's technology infrastructure and systems
Review inventory management practices and stock levels
Analyze production capacity and scalability of operations
Examine quality control procedures and product/service standards
Assess compliance with industry regulations and safety standards
Review key performance indicators (KPIs) and operational metrics
Evaluate the training and development programs for employees
Investigate any pending or potential operational disputes or issues
Analyze the company’s supply chain management strategies
Review historical operational challenges and how they were addressed
Assess the sustainability practices and environmental impact of operations
Evaluate the company’s response and adaptability to market changes and disruptions
Review operational budgets and expense management practices
Assess the overall culture and morale of the workforce
Identify any operational redundancies or inefficiencies
Legal Due Diligence
Review corporate documents (articles of incorporation, bylaws)
Check for any pending or past litigation
Verify intellectual property rights and registrations
Assess compliance with industry regulations
Review lease agreements and property titles
Here are some additional steps that could be included in the Legal Due Diligence section of a New Buying a Business Due Diligence checklist
Review contracts with suppliers and customers for terms and conditions
Assess employee agreements, including non-compete and confidentiality clauses
Evaluate any existing or potential liabilities related to employment practices
Investigate any governmental or regulatory investigations or inquiries
Examine insurance policies and claims history for adequacy and coverage
Review any past or current merger and acquisition agreements
Verify compliance with data protection and privacy laws (e.g., GDPR, CCPA)
Check for any environmental compliance issues or liabilities
Analyze any franchise agreements or partnerships if applicable
Confirm the accuracy of business licenses and permits
Investigate any potential conflicts of interest involving key stakeholders
Review any warranties or guarantees related to products or services
Assess the enforceability of any indemnity clauses in contracts
Examine the process for resolving disputes outlined in contracts
Evaluate the status of any pending regulatory approvals or licenses
Market Due Diligence
Analyze market trends and competition
Evaluate customer demographics and target market
Assess competitive advantages and unique selling propositions
Review marketing and sales strategies
Certainly! Here are some additional steps that you could include in the Market Due Diligence section of your checklist
Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) for the business and its competitors
Investigate market size and growth potential in both current and future markets
Analyze customer feedback and reviews to gauge satisfaction and identify areas for improvement
Evaluate distribution channels and logistics effectiveness
Assess brand reputation and awareness in the target market
Identify regulatory factors and compliance requirements affecting the market
Review pricing strategies and their alignment with market expectations
Investigate technological trends and innovations impacting the industry
Analyze sales performance metrics and conversion rates
Conduct surveys or focus groups to gather insights from potential customers
Review partnerships and alliances that may enhance market position
Explore potential barriers to entry for new competitors in the market
Risk Assessment
Identify potential risks (financial, operational, legal)
Evaluate the business’s insurance coverage
Assess potential liabilities and contingencies
Review crisis management and business continuity plans
Here are some additional steps that you can include in the Risk Assessment section of your Due Diligence checklist
Analyze industry-specific risks (e.g., regulatory changes, market volatility)
Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats)
Review historical claims and incidents that could indicate underlying issues
Evaluate the impact of economic factors (e.g., recession, inflation) on the business
Assess the company’s compliance with local, state, and federal regulations
Examine customer and supplier contracts for risk exposure
Investigate key employee dependencies and turnover risks
Review cybersecurity measures and potential data breach risks
Analyze the company's environmental, social, and governance (ESG) risks
Identify potential reputational risks and public relations strategies
Assess the reliability and condition of physical assets and infrastructure
Evaluate the dependency on key technology and potential obsolescence risks
Final Considerations
Determine valuation and negotiation points
Consult with legal and financial advisors
Prepare a summary report of findings
Plan for post-acquisition integration and strategy
Here are some additional steps that could be included in the Final Considerations section of a New Buying a Business Due Diligence checklist
Review and finalize the purchase agreement terms
Assess potential tax implications of the acquisition
Identify key personnel and plan for retention strategies
Establish a communication plan for stakeholders and employees
Develop a timeline for the acquisition process and key milestones
Create contingency plans for potential challenges post-acquisition
Evaluate cultural fit between the acquiring and target companies
Confirm any outstanding legal or regulatory compliance issues
Review intellectual property and proprietary assets for protection
Establish metrics for measuring the success of the acquisition
Create a budget for post-acquisition expenses and investments
Plan for any necessary changes to operational processes and systems
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