Due Diligence Checklist for Searchers

searcher profile

August 15, 2019

by a searcher from Harvard University in New York, NY, USA

I've seen a couple of people posting in here asking for Due Diligence Checklists. I came across this one which is pretty good. Just enter your email and it's free!

https://library.axial.net/sample-due-diligence-checklist


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commentor profile
Reply by a searcher
from University of Georgia in St. Louis, MO, USA
I am on the other side of the transaction and have been running my company for 5 years at this point. I've talked to a good number of searchers over the years one common theme is that folks spend too long in DD with companies that won't work. To that end, here are the three questions that I would use as a first pass on any company. It'll save you a ton of time:
1. What is the retention rate of the client base? If it's not recurring revenue, what is the reorder rate and how does that compare to the broader industry? If you have clients dropping like flies and the sales engine has to always find the next new client to keep the business afloat, your top-line may look normal but the work to accomplish it may be astronomical. Remember, you are going to have to run this business so think about the day to day of that.
2. What is the retention rate of the employees / contractors? High turnover is a definite red flag, outside of scenarios where there is significant seasonality (like retail). Even still, I'd look for a high rehire rate as a sign of a stable business.
3. Do you like the customers? I remember looking at businesses when I was searching and everything turned into numbers on a spreadsheet. On the other side, those numbers are clients/customers who are upset about something. If you don't like your customers, you'll hate your business.
You need to do deeper DD than this, but this will save you so much time on bad businesses. Hope that helps.
commentor profile
Reply by an intermediary
from Northwestern University in Orlando, Florida, USA
More communication around expectations for what due diligence will entail is always helpful. Sellers always have some shock when they see a due diligence list. It's good to reduce that.

In addition to hinting at the size of the DD request, I would add the following information for each requested item:

(1) It's priority level (in case some information is not critical)
(2) The (negotiable) date by which you would like to receive it

This helps keep the parties on the same page and hopefully prevents the process of due diligence from damaging the deal.
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