FINANCIAL
Assets
Obtain bank statements for the past three years. Verify bank reconciliations for all bank accounts with significant cash balances.
Obtain detailed accounts receivable and notes receivable ledgers or records, including aging schedules and information on allowances for doubtful accounts.
Determine days of receivables outstanding, valuation methods, and bad debt probability. Ensure you understand how those outstanding accounts will be paid current.
Review inventory items, valuation methods, and discuss the obsolescence reserve.
Obtain current fixed asset listings, depreciation calculations, and appraise the value of significant fixed assets.
Ascertain the existence of any liens against company assets and obtain any maintenance agreements on company equipment.
Discuss plans to close, relocate, or expand facilities and the need to replace assets.
Itemize all capitalized research and development or software development expenses.
Determine the value of any net operating loss carryforward assets.
List all owned or leased properties, including details on sales and purchases of major capital equipment in the last three years.
Obtain copies of all lease agreements for equipment and real estate, including deeds, appraisals, mortgages, leases, surveys, title policies, use permits, and other relevant documentation.
Provide a schedule of owned and leased fixed assets, including description, date acquired, value, and location.
Describe practices regarding inventory aging, valuation, obsolescence, and any methodology changes.
List any security interests in personal property, including UCC filings.
Audits
Arrange a due diligence meeting with the auditors (or at least the CPA that handles the books or taxes for the target company) to review financial statements, forecasts, accounting policies, auditor-management relationships, internal controls, and postaudit results.
Discuss the nature and scope of the auditors'/accountants' review of financial statements and forecasts.
Review any supplementary financial or management reports or letters to management prepared by the auditors.
Cash Flow
Construct a cash flow forecast for the next six months and review the trend line of working capital.
Categorize working capital by segment, product line, and customer.
Determine historical and projected capital expenditure requirements.
General
Confirm seller's financial performance by examining historical and interim financial statements, including significant accounting policies.
Review management letters or special reports by auditors and
any responses.
Provide detailed aging schedules for accounts receivable and payable.
Describe critical accounting policies, revenue, and cost recognition methods.
List fixed assets and provide a detailed description of any offbalance sheet arrangements.
Describe any non-GAAP financial measures and provide reconciliations to GAAP.
Obtain all business plans, including summaries of ongoing or proposed capital expenditures.
Provide financial statements for the target and branches, including unaudited financial statements for comparison.
Summarize any cash management controls, investment policies, and hedging policies.
Provide reports reflecting all aged accounts receivable trial balances.
List debts, agreements, or arrangements expected to result in a loss to the target.
Provide a current listing of standby letters of credit, performance bonds, and guarantees.
Investigate any auditor resignations, continual changes in accounting methods, complex business arrangements, and loan covenant targets.
Review insider stock sales, internal audit scope restrictions, endof-month sales patterns, and regulatory warnings.
Instruments
Summarize all outstanding debt, derivative instruments, and financing arrangements.
Provide copies of all financing agreements, including loan and credit agreements, mortgages, promissory notes, and related correspondence.
Liabilities
Review current accounts payable and terms of any lines of credit or other debt agreements.
Verify wage and tax remittances and review the suffciency of accruals.
Obtain copies of all unexpired purchasing commitments.
Investigate potential warranty, environmental, legal, and regulatory non-compliance issues.
Miscellaneous
Provide documentation on restrictions or encumbrances on assets.
Summarize the target's compliance program and applicable regulations.
List and summarize all pension plans, benefits, compensation policies, and incentive stock option plans.
Profitability
Obtain audited financial statements and tax returns for the last three years, and monthly financial statements for the current year.
Determine profitability by product, customer, and segment, and review revenues and profits per employee.
Analyze direct materials expense as a percentage of revenue and trends in revenues, costs, and profits.
Review the company's budget projections and compare past budgets with actual experience.
Property and Real Estate
List all business locations, including owned or leased property details.
Summarize deeds and provide copies of all related title papers for owned real estate.
Provide lease agreements and agreements related to the purchase or sale of real property.
List real property owned by the Company, including documents of title and outstanding leases.
Securities Issuances
Provide copies of equity and debt financing documents, including stock purchase and convertible debt agreements.
Summarize stock option or purchase plans and related agreements.
Supplier and Contractor Relations
List the top suppliers for the past three years and provide material contracts.
Summarize policies and procedures for evaluating and onboarding new suppliers or contractors.
Tax
Analyze tax returns, tax structure, and any audit adjustments proposed by the IRS.
Provide documentation around tax liens, settlements, and any tax provision work papers.
Evaluate the effect of changes in tax laws on the future operation of the business and assess potential tax liabilities.