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What should be included in a due diligence checklist?

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Quick Answer

Information including company overview, revenue and employees should be included in a due diligence checklist before a business is acquired. The checklist should include detailed information from the seller that makes business operations and finances clearer.

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Full Answer

To make a checklist about company overview, first ask why the company is being sold. There are good and bad reasons for why a company is being sold, including a retirement or expectation of a lawsuit. Finding the hidden bad reasons can determine if the company should be acquired or not. Business plan copies are also important, especially plans made over the past several years. Past business plans should be compared with recent versions to check overall performance and activities.

Revenue is another factor that must be included in a due diligence checklist. One part of assessing revenue is to look at the amount of backlog for each month for the past year. Increasing or decreasing backlog indicates future revenue levels. To assess company value, look at the company's recurring revenue stream, and determine the expected baseline revenue.

The types of employees are an important detail in a due diligence checklist. Some employees may have contacts with customers who can leave if those employees leave the company to another business. Another factor to take into consideration is that employees may expect a pay raise if the company imposed a pay freeze on them.

Factors such as employee benefits, financial results, cost structure and many others should also be included in a due diligence checklist.

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