Due diligence is crucial to any business deal, and, thankfully, due diligence research has come a long way over the years. Due diligence report is research into and examination of the background and financial condition, business operations and contractual obligations of a person or enterprise. It is done to establish a complete, accurate and reliable vision of the subject so that realistic, fact-based decisions can be made by another entity considering investment, business relationship, acquisition or litigation.
What to include in due diligence reports
1. Company Profile
Basic background information—including history, operations, reputation, number of employees, contact information, ticker symbol, names of top executives, top competitors, overview of financials, and any recent news stories and company press releases.
2. Industry Profile
To help understand the industry of the company for which you are conducting due diligence.
3. Financial Statements
Directly from the company or from a third-party financial analyst.
4. Annual Reports
Glossy report produced for shareholders containing information about operations, overview of financials, officers and directors, etc. Distinguished from the 10K filed with the SEC.
What Steps to Follow in business due diligence reports
1. Collect all board meeting minutes, contracts and financial documents for the most recent five-year period. Include all contracts for facilities, equipment, employees, suppliers, distributors and customers. Gather financial records including bank statements, loans, leases, tax returns and any legal liabilities. Also assemble any SEC documents pertaining to private or public offerings of stock, annual reports and other disclosure documents. If there are contracts or other important information stemming from beyond the five previous years, include them.
2. Start the due diligence report with a written profile of the company, its business model, revenue model, customer base, operations model, management bios and board activities. Write an overview of the industry and how the company fits into it, the company's comparative financial strength and how it stacks up against its competitors.
3. List the company's top customers and evaluate the past, present and likely future business relationship with these customers. Also do the same with the suppliers, distributors, affiliates and strategic partners.
4. Evaluate the company's contracts and leases with respect to their quality, length of time to expiration and potential for renewal. Request audited financials or bring in your own audit team. Analyze the company's financial strength and its ability to maintain or grow the enterprise in coming years.
5. Examine all SEC records if the company has sold securities privately or through a public offering. Value the stock if private or include price and volume charts if the stock is public. Include all insider transactions, a list of all bondholders, stockholders, warrant holders and option holders.
Useful Tips for making business due diligence reports
1. Write for the target audience.
2. Focus on the report objectives.
3. Limit the report to information that has material impact to your company.
4. Structure the information to be used as valuable reference material later.
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