Get Ready for Due Diligence Long Before a Sale or Merger

Posted on Thursday, August 30, 2018

It may seem odd, but as soon as you start up a business,  you should begin preparing the documentation needed to sell or merge with another enterprise. It may be years down the road but the records often required in today's M&A environment can be overwhelming. If your recordkeeping has been shoddy, it can be difficult or impossible to compile the information wanted by a potential buyer or partner.

You don't want to forgo opportunities just because you didn't have the necessary paperwork in order.

So what kind of information will you be asked for in the due diligence process? Here's a list of some common items.

Corporate Documentation

Articles of incorporation, bylaws, minutes, subscription agreements, shareholder agreements (and similar documents for an LLC and other formations).

Tax Returns

Copies of properly filed federal and state income tax, employment tax, state and local sales/use tax, property tax and other returns.
If you do business in other countries, compliance with foreign tax requirements.

Financial Information

Income statements, balance sheet (audited, if available), deferred revenue, working capital, bank account information, revenue recognition policies, accounting procedures, debt, loan information and balances.

Management Team

Bios, employment contracts, salaries, management incentive plans and stock options. (Be aware that background checks and Internet searches about executives may be conducted.)
Have managers signed non-compete agreements?


Computer systems and IT security;
Business equipment and related outstanding loans;
Maintenance of equipment, vehicles, facilities;
Distribution systems;
Strategic relationships, key vendors, suppliers;
Contracts with vendors and independent contractors;
Research and Development;
Facilities, including parking; and
Anticipated space needs in the future.

Human Resources

Salaries, overtime, bonuses, profit sharing;
How your business handles employee evaluations, discipline and terminations;
Do any employees work remotely or from home?;
Compliance with federal, state and local laws;
Employee handbook; and
Offer letters, contracts and non-compete agreements with employees.

Employee Benefits

Retirement plans, including vesting and employer match programs; and
Health insurance programs, including whether you have any former employees under COBRA.

Government Regulations

Licenses, permits, and required correspondence with government entities.
Are you up to date on all public filings?

Sales and Marketing

Pricing of products and services;
Per customer revenue;
Customer retention statistics;
Commission structure for sales people;
Lead generation and tracking of leads in the pipeline; and
Advertising/ marketing programs and attendance at trade shows.

Products and Services

Inventory (cost, value and average levels);
Obsolete or slow moving items; and
Pending products under development.

Legal Matters

Pending litigation, claims, major disputes;
Ownership and protection of intellectual property; and
Compliance with the Sarbanes-Oxley Act; the Patriot Act,Occupational Safety and Health Act; the Fair Labor Standards Act, the Consumer Product Safety Act and all other federal and state relevant laws.

Real Estate

Leases, terms;
Mortgages and equity in real property;
Environmental concerns; and
Tax liens and other liens against properties.


Policies including business liability insurance, life, auto; product liability, directors and officers, casualty, Workers' Compensation; and
Accident/ injury reports.


Have you had a professional valuation done?
Does the value include intangibles such as goodwill?

As you can see, the information that may be requested in M&A transactions can be quite detailed. Potential buyers and partners want full disclosure about operations so there are no surprises. Compile and update documentation so you are as prepared as possible.

This checklist only contains some of the items you may be asked to produce. The exact information depends on the business, the potential buyer and the industry involved. If you have questions about how to prepare for a sale or merger, consult with your attorney and tax advisor.

Posted in Tax And Accounting Topics For Business

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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