Devil is in the Details – Due Diligence

Written by James Sanders

The letter of intent is signed and now you want to look more into the deal.  What does that mean?  If you are the Buyer, do you just ask the Seller if business is going well and leave it at that.  Probably not unless you have some sort of magical insight.  Due diligence is a critical part of the buy/sell process because it is where assumptions and questions about the business are validated and answered. 

Below are some of the due diligence items that are most often provided and reviewed:  

Financial

• Income Statements, balance sheets and cash flow
• Tax Returns
• Inventory
• Asset List
• Bank records and reconciliation

Legal

• Organizational documents
• State certificates of authority
• Litigation
• Insurance
• Agreements
• Intellectual property
• Licenses/permits/regulatory approvals

Operations

• Key vendors
• Customer lists
• Marketing
• Employee
• List of employees
• Payroll info
• Handbooks
• Benefit plans
• Employee contracts

IT

• Website/social media/email
• Software
• Hardware

Environmental/Regulatory Issues

All of this should be ready to provide if you are the Seller and thoroughly reviewed if you are the Buyer.  The proverbial “devil is in the details” comes out in this phase.  Make sure you have a solid team of business advisors to help you through this process.