Due Diligence Checklist


This checklist is provided as a guide for preparing for the interview with potential investors and bank lenders.  Many of the questions may be answered in the company business plan.

General Background

  • History of the company and any predecessor companies.
  • Why are you in this business?
  • What are your company’s short- and long-term objectives?
  • If academics, what are your plans regarding your academic position?
  • What are your company’s financial needs?
  • What is your company’s unique advantage?

Management and Human Resources

  • Organizational chart.
  • What is the makeup of your Board of Directors?
  • Who are your professional advisors (accountant, corp./patent attorney, consultants, etc.)?
  • Are there any gaps in the management team, explain?
  • Are there any anticipated management changes, explain?
  • Are there any employment contracts or agreements, explain?
  • Are there any confidentiality agreements, explain?
  • DOB and SS# and address for principal(s) background check.
  • Total number of employees.
  • Do you have an employee handbook?
  • What are your current and anticipated staffing needs?

Products or Services Offered

  • How will customers use your product or service?
  • What benefit(s) will the customers value from your product or service?
  • How does your product or service compare:
    • Price?
    • Quality?
    • Current method?
    • Competitive product?
    • Service?
    • Availability?
    • Engineering?
    • Credit terms?
  • Is there patent, trademark or trade secret protection?
    • If so, who owns it? Is there a license from the owner of the technology?

Market

  • Is demand basic or created?
  • Is the market mature?
  • What are the trends in the industry?
  • What is the geographic market?
  • Is there an opportunity for exporting?
  • Where is the growth opportunity? (Roll-up strategy? M&A’s?)
  • How is your market segmented?

Customers (if they exist)

  • Who are your customers, or who will they be?
  • Why are customers buying or why would they buy from your company?
  • Are there any long-term purchase agreements?
  • Is there any trend among customers toward:
    • Integrating the manufacturing of this product into their operations?
    • Purchasing substitute products?
    • Switching suppliers?

Competition

  • Who are your major competitors?
  • What is their unique advantage?
  • Are they growing?
  • How do they compare on key buying issues?
  • What are their plans?
  • How will they react?

Sales and Marketing

  • What are your pre-contract sales costs?
  • When is your sale closed?
  • How much custom engineering is required?
  • What are the upgrade obligations? Are they clearly defined?
  • Is your product/service well documented?
  • How much engineering support is required on installation and in operation?
  • Do you have a direct sales force? What is its size? Cost? Effectiveness?
  • Are sales representatives used? How are they selected and compensated?
  • What are your channels of distribution?
  • What advertising and sales promotion practices are used?
  • What is your sales forecast and justification?
  • Who are your target markets?
  • How is your product priced?
  • What are your company’s credit policies?

Operations

  • Fixed assets, location and condition.
  • Location and description of facilities.
    • Assessed and fair market value.
  • List of your future facility and equipment needs.
  • Explain your basic manufacturing process?
  • How are procedures being modified to improve efficiency?
  • What system is in place to assure the quality of your product or service?
  • What are your critical raw materials?
  • Who are your critical suppliers, contracts?
  • What factors might cause a substantial delay in production?
  • Status of inventory, including level and obsolescence.
  • Do you have any contractual obligations other than those requested here?

Financial Considerations

  • Audited financial statements
  • Capitalization Table
  • Do you have any grants? Do you have any grant opportunities?
  • Sales backlog information.
  • Aging reports – both A/R and A/P (most recent).
  • Company’s tax I.D. #.
  • What are your projected financials, including cash flow?
  • What are your sources and uses of funds?
  • Do you have a strong cost accounting system in place?
  • Is your insurance coverage adequate?
  • What is your tax liability and payment record?
  • What is your worst-case scenario?

Legal Matters

  • Articles of Incorporation.
  • Bylaws and Amendments.
  • Minutes of Directors’ and Shareholders’ meetings.
  • Certificate of Good Standing from the State of Michigan.
  • Subsidiary listing.
  • Contractual agreements.
  • Stock Option Plan.
  • Do you have any current or anticipated litigation (State or federal agency)?
  • Regulatory hurdles (e.g., FDA, animal use, clinical studies, GMP, ISO)
  • Environmental regulation/violations (waste discharge, RCRA, OSHA, EPA)?
  • Warranty and service guarantees.
  • Do you have any product liability?