Due Diligence Checklist Lena Ludwig-Lapper | AcquisitionPlatform.com | Back to Resources » If you are planning to or already have put your company on the market for sale, why not make things easy on yourself and prepare for the due diligence process? You and everyone involved in the transaction will be glad that you did.

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1. Organization: Round up everything about your company and organize it neatly, including corporate entities, state of incorporation, subsidiaries, company ownership, etc. Explain subsidiaries and their roles in your organization. Minutes from stockholders meetings - include those and while you're at it, list all of the directors and stockholders and explain any special voting rights. Although boring to some, go ahead and add charters, and by-laws, and any agreements that you may hold within your organization and any with outside companies. Any agreement, contract, partnership, joint venture, lease, stock option - basically anything that requires paper and a signature - have all of that in your file under "Organization." Go back at least five years with these details. We advise having every agreement potentially within reach if possible.

2. Financials: Prepare and have available five years' consolidated and consolidating audited statements of the Company; management letters from accountants and auditor response letters for past three years. Cash flow statements, projections for this year and next year, and also prepare a worksheet for any unusual items in your historical data. They are going to ask, so you may as well already have the answers. Everything that is in your financial statement > include all corresponding worksheets: current loan agreements, bank line of credit, mortgages, deeds of trust, personal loans, anything binding the Company and subsidiaries to a contract involving money or obligation.

Also in the Financial section include:

• Your largest customers, by volume - and a resale certificate for these customers;
  
• All of your assets (prepaid, fixed, other) and include purchase value and book value;
  
• Your liabilities (and accruals) for the current year;
  
• Receivable aging;
  
• Accounts payable aging;
  
• Anticipated capital expenditures;
  
• Inventory schedule, valuation and turnover reports;
  
• Details of owner's compensation for the past three years;
  
• Major vendor balances;
  
• Short-term investments;
  
• Computer systems used in the Company; and
  
• Any details you think are pertinent to a successful sale of your Company.

3. Properties: Include any properties owned and how they are used in relation to the business. Insurance policies, appraisals, reports, and any related paperwork should be included. If you have equipment, list those with corresponding value. List any rental or sales agreements, mortgages, pledges for all real property and all UCC filings.

4. Taxes: Federal, state and local tax returns for the last five years of both the Company and any subsidiaries; IRS audits and reports; statute of limitation waivers; general estimate of assets and liabilities; tax basis of assets and liabilities; and reconciliation of sales reported to the state. Include any tax disputes or assessments that are on-going with the IRS.

5. Employees: List all employees (full-time, part-time, duration, job function, quality grade_ and any employee contracts; non-compete or confidentiality agreements; consultant contracts; any pending employee disputes; employee benefits; and union affiliations.

6. Employer Plans: Insurance coverage reports and schedules; actuarial reports; investment money manager and cash reserves; qualification letter from IRS; and include the identity of trustees.

7. Contracts:

• Standard forms for frequently consummated contracts.
  
• Schedule of insurance coverage.
  
• Franchise, distributorship, dealer, royalty or sales agency agreements.
  
• Significant contracts for the purchase of materials, supplies, services, merchandise or equipment.
  
• Contracts for the sale of assets out of ordinary course.
  
• Retainer arrangements with professionals.
  
• Compensating balance arrangements with banks.
  
• Secrecy or non-compete agreements.
  
• Membership agreements or other relations with trade associations.
  
• Guarantees.
  
• Any agreements or letters of intent entered into by the Company or any of its subsidiaries relating to any acquisition or merger or sale and purchase of substantial assets.

8. Everything Else:

• Schedule of all intellectual property including but not limited to material, patents, trademarks, trade names, service marks and copyrights owned or used by the Company or any of its subsidiaries.
  
• Description of all pending or threatened litigation, including amount claimed and whether covered by insurance.
  
• Forms of trade secret or other confidentiality agreements entered into with employees, consultants or customers of the Company and each of its subsidiaries.
  
• Copies of purchase, licensing, assignment and royalty agreements to which the Company or any of its subsidiaries is a party relating to patents, trademarks, trade names and copyrights which are currently in effect.
  
• Brokers or finders' agreements.

And most obviously, any and all information which may have a material effect on the buyer's decision to proceed with the contemplated transaction.

Collect and organize all of these materials and you not only consummate a sale quickly, but your confidence will be elevated. You'll be refreshed on your Company's structure and capabilities and will be able to provide answers to any questions.

Lena Ludwig-Lapper is the president of Acquisition Platform.

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