(Seller's Due Diligence Checklist

This checklist is designed to help sellers prepare for a potential sale of their business. It is not exhaustive and should be tailored to the specific circumstances of the transaction.

I. Financial Information

• Financial Statements:

• Prepare audited or reviewed financial statements for the past three to five years.

• Provide year-to-date financial statements.

• Prepare projections and budgets for future periods.

• Analyze key performance indicators (KPIs) and trends.

• Explain any significant accounting policies or changes.

• Tax Returns:

• Gather federal, state, and local tax returns for the past three to five years.

• Address any outstanding tax liabilities or audits.

• Bank Statements and Accounts:

• Provide bank statements for all business accounts for the past twelve to twenty-four months.

• Reconcile bank statements with accounting records.

• Debt:

• List all outstanding loans, leases, and other debt obligations.

• Provide loan agreements and amortization schedules.

• Disclose any personal guarantees.

• Accounts Receivable and Payable:

• Provide an aging of accounts receivable and payable.

• Analyze creditworthiness of key customers and suppliers.

• Capitalization Table:

• If applicable, provide a capitalization table showing ownership structure.

• Include details of any stock options or warrants.

II. Legal and Regulatory Compliance

• Corporate Documents:

• Organize and update corporate records, including articles of incorporation, bylaws, and minute books.

• Ensure compliance with all applicable laws and regulations.

• Contracts:

• Gather all material contracts, including customer contracts, supplier agreements, leases, and employment agreements.

• Review contracts for key terms, expiration dates, and renewal options.

• Intellectual Property:

• Identify and document all intellectual property, including patents, trademarks, copyrights, and trade secrets.

• Ensure proper registration and protection of intellectual property.

• Litigation and Disputes:

• Disclose any pending or threatened litigation or disputes.

• Provide relevant court documents and correspondence.

• Permits and Licenses:

• Gather all permits and licenses required to operate the business.

• Ensure compliance with all environmental, health, and safety regulations.

III. Operations and Management

• Organizational Structure:

• Prepare an organizational chart showing key personnel and reporting lines.

• Provide resumes and bios of key management personnel.

• Operations Manuals and Procedures:

• Document key business processes and procedures.

• Provide training materials and employee handbooks.

• Facilities and Equipment:

• Provide a list of all real estate and equipment owned or leased by the business.

• Include details of any liens or encumbrances.

• Inventory:

• Provide an inventory of all raw materials, work-in-progress, and finished goods.

• Analyze inventory turnover and obsolescence.

• Customers and Suppliers:

• Provide a list of key customers and suppliers.

• Analyze customer concentration and supplier dependence.

IV. Other Important Considerations

• Insurance:

• Gather all insurance policies, including property, casualty, liability, and workers' compensation.

• Review coverage and adequacy of insurance.

• Employee Benefits:

• Provide details of all employee benefit plans, including health insurance, retirement plans, and paid time off.

• Ensure compliance with all applicable labor laws.

• Environmental Compliance:

• Disclose any environmental issues or liabilities.

• Provide environmental permits and reports.

• Information Technology:

• Document IT systems and infrastructure.

• Address any cybersecurity risks or vulnerabilities.

• Sales and Marketing:

• Provide marketing materials and sales data.

• Analyze market trends and competitive landscape.

Important Notes:

• This checklist is not exhaustive and should be tailored to the specific circumstances of the transaction.

• Sellers should consult with their legal and financial advisors to ensure they are fully prepared for the due diligence process.

• Thorough preparation can help facilitate a smooth and successful transaction.

• Early identification and resolution of potential issues can help maximize the value of the business.

• Maintaining confidentiality throughout the process is crucial.