Corporate documentation is among the most important things to include in your due diligence checklist.
Due diligence is a serious process. It’s your only chance to determine if the company you are about to buy is worth it, so you must take it seriously. But to do so, you must know what you are looking for. We have prepared this guide on five key factors that should be included in every M&A due diligence checklist.
- Corporate Documentation
Corporate documentation is among the most important things to include in your due diligence checklist. It’s a given that you will want to look at the mission statement, certificate of incorporation, and by-laws of any company you plan to invest in.
These documents will inform you about how the company has operated historically and its future goals. This information can help you determine whether or not investing in this company is worth your time.
You should look at the company’s financial statements, including its balance sheet and income statement. You can also check out the ratio analysis of these two documents to get a sense of how healthy the business is.
Other important areas to consider include cash flow (how much money comes in versus how much goes out), liquidity (the ability of a company to pay its liabilities), and profitability (how much profit does it generate).
- Human Resources
Employee turnover is a key indicator of how well your business is doing. If you are losing employees at an alarming rate, it could be due to poor management or lack of job satisfaction. This data point can also help you determine whether your company offers competitive compensation packages (salary and benefits) attractive enough for prospective employees.
Additionally, if there’s been high turnover among senior-level staff members who were instrumental in building up the company’s culture and brand identity over time (like its founders), this may indicate deeper issues with leadership or communication within the organization.
- Intellectual Property
Intellectual property is a broad term that encompasses patents, trademarks, copyrights, and trade secrets. These rights can be granted by law or acquired through commercial use. They protect ideas and creations, such as inventions or artistic works.
When conducting due diligence on a potential business partner or investor, it is important to understand what intellectual property rights they own or license from third parties. If you plan on using their technology as part of your product offering, review any patents related to this technology before entering into any agreements with them.
- Market and Competition
The market and competition are two important factors to consider when conducting due diligence. The first step is understanding the market’s size and growth rate. This information will help you determine if it’s a good time to enter a new business venture or if too much competition exists in an area.
Next, you should examine how your competitors operate. What strategies do they use? How do their products compare with yours? How can you differentiate yourself from them by offering better service or pricing? Understanding these factors will help determine whether entering this new venture makes sense for both parties (buyer and seller).
While conducting due diligence on a potential investment, it’s important to consider all factors that could affect future performance. The above checklist will help guide you through the process so you don’t miss anything important.