Due Diligence Checklists & Reports

Take advantage of a secure digital auditing tool for convenient due diligence—legal, financial, and more.

Published December 1st, 2020

What is a Due Diligence Checklist?

A due diligence checklist is a tool used by investors, business owners, and consultants in analyzing a company that they’re acquiring through either a sale, merger, or other methods. Also referred to as a due diligence checklist for acquisition, due diligence checklists help ensure that the final decision is based on a thorough investigation of all aspects of the business, uncovering red flags and determining if the current value of a company makes it a wise investment.

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This article will briefly discuss:

Due Diligence Red Flags

Investors and consultants need to review key aspects of a business to determine if it will be worth the investment and find red flags that may negatively impact profitability. Here are some of the key aspects to look into and some key due diligence questions to ask:

  • Organization

    Is the business in compliance with legal requirements? Is the company open to sharing requested company information or were there reservations?

  • Products and services offered

    What is the business selling? Do the products and services meet required certification and legal criteria? How about the product development and manufacturing processes?

  • Finances

    Review all financial records, including all debts acquired and taxes paid. Check for compelling reasons to investigate further and be wary of how the company manages its finances. Does the company exhibit transparency in providing access to financial records?

  • People

    How are employees treated? How competitive is the employee benefit package? Is there a history of legal action initiated by or against employees? What is the professional history and reputation of the key executives?

  • Reputation

    Public perception can impact profitability. Find out what the media, competitors, and the target market has to say about the business. How is the business’ corporate social responsibility? Any legal issues or environmental concerns raised against the company? What is the company’s overall reputation in the industry?

3 Major Types of Due Diligence Checklists

There are three main types of due diligence, these are: 1) Legal, 2) Financial, and 3) Commercial. All three types help contribute in providing the right information thoroughly assessing the company of interest’s business, assets, capabilities, and financial performance.

Legal Due Diligence Checklist

Legal due diligence is the examination and review of legal documents and contracts. A legal due diligence checklist includes exploring areas such as:

  • Legal structure
  • Contracts
  • Loans
  • Properties
  • Employment
  • Pending litigations

Financial Due Diligence Checklist

Financial due diligence focuses on verifying and evaluation of financial records of the target company. A financial due diligence checklist covers areas such as:

  • Earnings
  • Assets
  • Liabilities
  • Cash flow
  • Debt
  • Management

Commercial due diligence checklist

Commercial due diligence is the thorough understanding and examination of the market that the target company operates in. A commercial due diligence checklist involves activities such as conversing with customers, assessment of competitors and an analysis of the business plan.

What are Due Diligence Documents?

Due diligence documents, or due diligence forms, are records, reports, or other documents that helps verify and corroborate the due diligence process. Below are selected documents from each type of due diligence according to a non-exhaustive list made by an industry leader on research, benchmarking, and performance:

  • Corporate by-laws and any amendments
  • Records surrounding issuances or grants of stock, options and warrants
  • List of all business locations where the company owns/leases property, maintains employees and/or conducts business
  • Three years of annual and quarterly audited financial statements, with the auditor’s reports and unaudited financial statements for comparison (click here to view the complete financial due diligence checklist)
  • Copies of any audit and revenue agency reports
  • Employee handbook covering policies, benefits, procedures and training
  • Information around sales and marketing procedures, including research, messaging, CRM systems and processes, and lead generation practices (click here to view the complete operational due diligence checklist)
  • List of all owned or leased properties and applicable details
  • Documents detailing the company’s approach to IP protection and enforcement
  • Agreements with distributors, value-added resellers and dealers
  • All active litigation files (click here to view the complete legal due diligence checklist)
  • Copies of any violations, complaints or requests for information regarding environmental, workplace safety and health
  • Any material reports to government entities and agencies, including EPA and OSHA
  • Documentation around IT processes including applications development, IT operations, disaster recovery, IT security, and cost management (click here to view the complete technical due diligence checklist)
  • Documents covering company values, mission, vision and shared beliefs
  • Assessment of strategic fit within the larger buyer organization

Click here to view the complete Due Diligence Documents Checklist

Example of a Due Diligence Report

A due diligence report is a summary of the findings from the entire due diligence process completed by the company’s internal team or a paid third-party group. Reporting about due diligence can seem a daunting task, but it can help to do a breakdown of the reports according to the type of due diligence or highlight red flags like the due diligence report example below:

due diligence report example

Due Diligence Sample Report

Click here to view the complete Due Diligence PDF

iAuditor as a Company Due Diligence Tool

Conducting due diligence to assess the viability of businesses for investment, mergers, and acquisitions entails going through a lot of company records in as little time as possible. iAuditor by SafetyCulture can help business owners and consultants conduct effective due diligence by providing the following benefits.

Convenient highlighting of findings

  • Take photos using your mobile device to highlight findings during due diligence
  • Make quick notes referenced to specific points on your checklist that you can easily review while creating the due diligence report

Digital record-keeping

  • No more dealing with paper-based checklists and illegible handwritten notes that can get lost or damaged
  • Paperless records can be shared via weblink or as a PDF or Word document

Secure information

  • iAuditor uses secure cloud storage so there is no fear of leakage or unauthorized access to data
  • Only designated or authorized person/s can access information

Continuity

  • One go-to app for the duration of conducting due diligence
  • Continue where you last left off and make updates based on findings
  • Integrate iAuditor with other platforms as needed

 

This article will briefly discuss:

Due Diligence Red Flags

Investors and consultants need to review key aspects of a business to determine if it will be worth the investment and find red flags that may negatively impact profitability. Here are some of the key aspects to look into and some key due diligence questions to ask:

  • Organization

    Is the business in compliance with legal requirements? Is the company open to sharing requested company information or were there reservations?

  • Products and services offered

    What is the business selling? Do the products and services meet required certification and legal criteria? How about the product development and manufacturing processes?

  • Finances

    Review all financial records, including all debts acquired and taxes paid. Check for compelling reasons to investigate further and be wary of how the company manages its finances. Does the company exhibit transparency in providing access to financial records?

  • People

    How are employees treated? How competitive is the employee benefit package? Is there a history of legal action initiated by or against employees? What is the professional history and reputation of the key executives?

  • Reputation

    Public perception can impact profitability. Find out what the media, competitors, and the target market has to say about the business. How is the business’ corporate social responsibility? Any legal issues or environmental concerns raised against the company? What is the company’s overall reputation in the industry?

3 Major Types of Due Diligence Checklists

There are three main types of due diligence, these are: 1) Legal, 2) Financial, and 3) Commercial. All three types help contribute in providing the right information thoroughly assessing the company of interest’s business, assets, capabilities, and financial performance.

Legal Due Diligence Checklist

Legal due diligence is the examination and review of legal documents and contracts. A legal due diligence checklist includes exploring areas such as:

  • Legal structure
  • Contracts
  • Loans
  • Properties
  • Employment
  • Pending litigations

Financial Due Diligence Checklist

Financial due diligence focuses on verifying and evaluation of financial records of the target company. A financial due diligence checklist covers areas such as:

  • Earnings
  • Assets
  • Liabilities
  • Cash flow
  • Debt
  • Management

Commercial due diligence checklist

Commercial due diligence is the thorough understanding and examination of the market that the target company operates in. A commercial due diligence checklist involves activities such as conversing with customers, assessment of competitors and an analysis of the business plan.

What are Due Diligence Documents?

Due diligence documents, or due diligence forms, are records, reports, or other documents that helps verify and corroborate the due diligence process. Below are selected documents from each type of due diligence according to a non-exhaustive list made by an industry leader on research, benchmarking, and performance:

  • Corporate by-laws and any amendments
  • Records surrounding issuances or grants of stock, options and warrants
  • List of all business locations where the company owns/leases property, maintains employees and/or conducts business
  • Three years of annual and quarterly audited financial statements, with the auditor’s reports and unaudited financial statements for comparison (click here to view the complete financial due diligence checklist)
  • Copies of any audit and revenue agency reports
  • Employee handbook covering policies, benefits, procedures and training
  • Information around sales and marketing procedures, including research, messaging, CRM systems and processes, and lead generation practices (click here to view the complete operational due diligence checklist)
  • List of all owned or leased properties and applicable details
  • Documents detailing the company’s approach to IP protection and enforcement
  • Agreements with distributors, value-added resellers and dealers
  • All active litigation files (click here to view the complete legal due diligence checklist)
  • Copies of any violations, complaints or requests for information regarding environmental, workplace safety and health
  • Any material reports to government entities and agencies, including EPA and OSHA
  • Documentation around IT processes including applications development, IT operations, disaster recovery, IT security, and cost management (click here to view the complete technical due diligence checklist)
  • Documents covering company values, mission, vision and shared beliefs
  • Assessment of strategic fit within the larger buyer organization

Click here to view the complete Due Diligence Documents Checklist

Example of a Due Diligence Report

A due diligence report is a summary of the findings from the entire due diligence process completed by the company’s internal team or a paid third-party group. Reporting about due diligence can seem a daunting task, but it can help to do a breakdown of the reports according to the type of due diligence or highlight red flags like the due diligence report example below:

due diligence report example

Due Diligence Sample Report

Click here to view the complete Due Diligence PDF

iAuditor as a Company Due Diligence Tool

Conducting due diligence to assess the viability of businesses for investment, mergers, and acquisitions entails going through a lot of company records in as little time as possible. iAuditor by SafetyCulture can help business owners and consultants conduct effective due diligence by providing the following benefits.

Convenient highlighting of findings

  • Take photos using your mobile device to highlight findings during due diligence
  • Make quick notes referenced to specific points on your checklist that you can easily review while creating the due diligence report

Digital record-keeping

  • No more dealing with paper-based checklists and illegible handwritten notes that can get lost or damaged
  • Paperless records can be shared via weblink or as a PDF or Word document

Secure information

  • iAuditor uses secure cloud storage so there is no fear of leakage or unauthorized access to data
  • Only designated or authorized person/s can access information

Continuity

  • One go-to app for the duration of conducting due diligence
  • Continue where you last left off and make updates based on findings
  • Integrate iAuditor with other platforms as needed

 

Author

Erick Brent Francisco

SafetyCulture staff writer

As a staff writer for SafetyCulture, Erick is interested in learning and sharing how technology can improve work processes and workplace safety. Prior to SafetyCulture, Erick worked in logistics, banking and financial services, and retail.

Author

Erick Brent Francisco

SafetyCulture staff writer

As a staff writer for SafetyCulture, Erick is interested in learning and sharing how technology can improve work processes and workplace safety. Prior to SafetyCulture, Erick worked in logistics, banking and financial services, and retail.