Due Diligence – What to expect

Due Diligence allows the Buyer to inspect the business. They are looking to verify that the business makes the Cash Flow and that the Seller states it is making via the Financial Statements. In addition the business should be in legal compliance with laws and industry regulators. If the Seller is confident that the accounting records are accurate and the business is legal compliance, there is little to be concerned about. Feel free to contact us with any Due Diligence questions.

The Due Diligence process typically takes about 60 days. The Buyer should submit a Due Diligence Checklist within three to five business days of execution of Letter of Intent. Below is a sample checklist to help the Seller know what to expect and what to prepare prior to sale and prior to Due Diligence. The actual Due Diligence Checklist may be different but many of the items listed below are typical.

This is a typical Mergers and Acquisition Due Diligence Checklist used by an Institutional Buyer. Some of the items requested may not be applicable to your business or industry. Feel free to check with us what your business may need. A smaller business or Individual Buyer may require a considerably smaller Cue Diligence Checklist.

FINANCIAL DUE DILIGENCE

This list is complete and detailed. Many smaller businesses may not have available this depth of detail.

• Bank Statements for the for past three years
• Cash Receipts Journals for the for past three years
• General ledgers for the for past three years
• Cash disbursement journals/check registers for the for past three years
• Copies of all Leases and Contracts still in existence including lease for premises.
• Copies of all insurance policies and related invoices for the for past three years
• Copies of Payroll tax returns and all related schedules for the for past three years
• Copies of owner’s W2’s for past three years
• Copies of Corporate tax returns for the past three full years
• Detailed list of all equipment and supplies.
• Copies of Sales Tax returns for past three years
• Name and telephone number of seller’s Accountant and Attorney.
• Detailed schedule of owner benefits.
• Current Balance Sheet and Income Statement.
• Copies of any Company applications for Paycheck Protection Program loans, Medicare
• Schedule of all current clients, with yearly billing and agreement terms, if any.

CONTRACTS AND COMMITMENTS

• All consulting, billing, and management agreements to which the Company is a party or that otherwise impact its operations.
• All maintenance, service, supply, and/or vendor agreements (e.g., staffing agreements, medical director agreements, pharmacy agreements, diagnostic services agreements, etc.)
• All agreements and descriptions of all other financial relationships between the Company and any related party (including an affiliate, equity holder, manager, or officer, or any entity owned, directly or indirectly, by any of the foregoing persons) in effect now or in the past 6 years.
• All agreements and descriptions of all other financial relationships between the Company and any entity or individual (or member of such individual’s immediate family) in a position to purchase or order, or arrange for the purchase or order, of a Company’s products and/or services or otherwise generate business for a Company or for whom any Company is in a position to arrange for the purchase or order of, or otherwise generate business for, such other party in effect now or in the past 6 years.
• All other material contracts or agreements not otherwise described above, including a description of any applicable oral agreements.

RISK MANAGEMENT

• All insurance policies held by the Company, including professional liability, casualty, property, errors and omissions, officers and directors, workers’ compensation, key man, cybersecurity, and environmental insurance.
• Description of any self-insurance, risk retention, or captive insurance programs.
• A description of all claims filed, pending or threatened in the past 6 years.
• Loss run reports for each insurance policy for the last 5 years.

LITIGATION AND GOVERNMENT PROCEEDINGS

• List of all threatened, pending, or settled claims, audits, disputes, investigations, subpoenas, litigation, or proceedings involving the Company within the last 5 years (including nature of the claim, amount involved, and status of the proceedings).
• Any correspondence related to, any survey, inspection, investigation, or audit by any governmental agency, accreditation body, or payor.
• Describe, and provide any documentation related to, any decrees, orders, corporate integrity agreements, self-disclosures, and/or settlement agreements to which the Company is subject.
• Summary of any claims made in the last 3 years by contractual counterparties asserting default or material non-performance by the Company and a summary of any claims made in the last 3 years by the Company asserting default or material non-performance by any contractual counterparty.

EMPLOYMENT MATTERS

• List of all employees/contractors including status, job description, employment date, and compensation (including bonus or incentive programs), location, and accrued vacation time and sick time.
• All agreements with employees, locums tenens, and independent contractors.
• Any arrangement entitling an officer, manager, or employee to receive any compensation as a result of a sale or change of control of the Company
• All employee benefit plans, summary plan descriptions, discrimination testing results, and any trust documents.
• All employee handbooks, employee policies, and/or manuals, salary/wage ranges, and job classifications.
• List of all personnel (a) terminations or suspensions, (b) license investigations, revocations, exclusions, convictions, suspensions or probations, and (c) privilege revocations, suspensions, or probations in the last 5 years.
• Summary of all sales commission or bonus plans, deferred compensation or other variable compensation or incentive programs, together with: (a) copies of the plan documents and any summaries or award agreements provided to employees, and (b) schedule of the timing and total amount of bonuses and incentives paid or to be paid for the last fiscal year and estimated payments for the current fiscal year.

REAL ESTATE

• Copies of all real property leases and subleases for which Company is a landlord or tenant, relating to real property, including ground leases.
• Street addresses of all real estate leased by the Company, including a description of how each property is utilized.
• Copies of all zoning permits or other confirmation that real property use is consistent with applicable local land use code.
• Copies of all building inspections performed within the last 3 years for real property owned or leased by Company.
• Copies of all environmental permits for facilities owned, used or operated by Company.
• Describe and provide any documentation of all material citations, orders, decrees, or notices related to a problem or deficiency of a building, or grounds on which a building is situated (including ADA, OSHA, environmental, restrictive covenants, zoning, building, health and safety laws, and other governmental laws or regulations) and any corrections made to address them.

*This is a sample is for education purposes. Consult your Advisor or Attorney before use.