DUE DILIGENCE READY

DUE DILIGENCE CHECKLIST

The burden of providing all this information is going to be on you and your management team to anybody who is interested in funding your company.



1. Corporate Documents:
Articles of Incorporation
Bylaws and operating agreements
Shareholder agreements
Minutes of Board of Directors and Shareholder meetings
All documents furnished to shareholders and directors
Certificates from all states and jurisdictions where the company does business

2. Previous Securities Issuance:
Copies of stock certificates, warrants and option agreements
Complete Stockholder contact information
Number of outstanding shares, dates of issuance, and percent ownership

3. Financial Information
Audited financial statements since inception
Income statements, balance sheets, cash flow statements
Records of all changes in equity position
Company prepared monthly or quarterly statements
A three year budget and financial projections
A complete and current business plan
Accounts receivable aging and accounts payable aging
Product or service pricing plans and policies
Revenue and gross margins by product or service
Extraordinary income or expense details
Explanation of any material write-downs or write-offs
A summary of all bad debt experiences
Details of any outstanding contingent liabilities

4. Tax Status
All types of tax returns for the last three years including detail of any tax audits, scrutiny pending information.

5. Contracts and Agreements
List of Bank and non-Bank lenders
Joint venture and partnership agreements
License agreements
Purchase agreements
Liens, equipment leases, mortgages or any other outstanding loans
Insurance contracts and agreements
Contracts with suppliers, vendors and customers
Any additional agreements or contracts relevant to the business of the company

6. Governmental Regulations
Copies of all permits and licenses
Copies of reports made to government agencies

7. Litigation
Description of any current litigation including potential damages
Description of any potential litigation including potential damages
Settlement documentation

8. Products and Services
Detail of product offering including market share by product line
Inventory analysis including turnover, obsolescence and valuation policies
Backlog analysis by product line including analysis of seasonal issues
List of all major suppliers including dollar amount purchased per year

9. Marketing
List of competitors and detail of market share
List of major clients
Analysis of pricing strategy
Current brochures and marketing materials
Sales commission structure
Sales projections by product line

10. Management and Personnel
Management organizational chart and bios of senior personnel
Detail of any labor disputes
Employee compensation plans including pension, options, profit sharing, deferred compensation and retirement
Management incentive plans including pension, option, profit sharing, deferred compensation, retirement and any non-cash compensation
Employee confidentiality Agreements
Listing of any consulting Agreements
Number of employees, turnover, absentee problems and hiring projections
Employee HR, benefits, and insurance manuals
List of Company's Directors
Credit history report on all principals, managers, and directors
Resume verification on all principals, managers, and directors

11. Property and Equipment
An appraisal of all equipment and fixed assets
List of all real property owned by the company
Copies of titles, mortgages, and deeds of trust
Detail of any easements or other encumbrances
Leases and sub-leases
Company space expansion plans
Patents, trademarks and other intangible assets

12. Research & Development
Detail all research and development in progress
Commercial analysis of R&D efforts
Documentation policies including examples

13. Other Company Information
Copies of all past and planned company press releases
Existing articles relating to the company and its industry
Company newsletters and any investor relations material

14. The Kitchen Sink
Any other information that might be pertinent to full disclosure of all company issues

Investment Process

Preliminary Screening The initial meeting provides an opportunity for the funder to meet with the entrepreneur and key members of the management team to review the business plan and conduct initial due diligence on the project. It is an important time for the management team to demonstrate their understanding of their business and ability to achieve the strategies outlined in the plan. The funder will look carefully at the team's functional skills and backgrounds.

Negotiating Investment This involves an agreement between the Funder and management of the terms of the term sheet, often called memorandum of understanding (MoU). The funder will then proceed to study the viability of the market to estimate its potential. Often they use market forecasts which have been independently prepared by industry experts who specialise in estimating the size and growth rates of markets and market segments.

The funder also studies the industry carefully to obtain information about competitors, entry barriers, potential to exploit substantial niches, product life cycles, and distribution channels. The due diligence may continue with reports from other consultants.

Approvals and Investment Completed The process involves due diligence and disclosure of all relevant business information. Final terms can then be negotiated and an investment proposal is typically submitted to the funder’s board of directors. If approved, legal documents are prepared.

The investment process can take up to two months, and sometimes longer. It is important therefore not to expect a speedy response. It is advisable to plan the business financial needs early on to allow appropriate time to secure the required funding.

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