5 Steps to Prepare for Due Diligence

• June 27, 2022
• Richard Willis

The process of due diligence is one that should not be taken lightly. It’s the process of thoroughly investigating the risks, liabilities and potential rewards associated with a particular investment. Due diligence is not just about looking at the company’s financial reports or checking their website for errors. It’s about getting to know the company as well as its industry, culture, competitors and customers. Luckily, there are steps you can take to prepare yourself for this, and we’re going to talk you through some of them in this post.

5. Analyse Your Financial Situation

The best way to start preparing is by analyzing your company’s current financial situation and determining what information you will need from the other party. Detailed profit and loss statements, annual reports and balance sheets are among the most important records you will need to provide.

4. Prepare All Contracts

The next step is to make sure you prepare all material contracts. These can include supply agreements, customer contracts, insurance policies, employment contracts, loan and other financing agreements, and any marketing and advertising contracts.

3. Get Employee Information Ready

All information regarding employees, such as their wages, bonus compensations, vacation, benefit plans, sick time, and any policies, will also need to be shared. Ensure that you don’t give out any personal information like the names of employees to buyers, as you need to comply with GDPR.

2. Gather Intellectual Property Documentation

Intellectual property due diligence analyses the quality of the target company’s assets and determines their value. Make sure you have documentation supporting any trademarks, copyrights, trade secrets and patents to hand.

1. Be Transparent

This last step might sound obvious, but honesty truly is the best policy when it comes to selling your business and the due diligence process. Lying or hiding information is not only unethical, but it’s also very likely that either the buyer or the experts the buyer has hired will find out whatever you’re trying to hide. And believe us, this doesn’t look good on your business, and it most certainly will affect your reputation.

Bottom Line

The due diligence process has been established in the business world for decades and it is still a necessary step before any company can make an acquisition. When it comes to due diligence, you can’t be over-prepared, and it’s a good idea to prepare for it as soon as possible.