Due Diligence Checklist

1. Financial Due Diligence

• ✅ Review last 3–5 years audited financial statements (P&L, Balance Sheet, Cash Flow).
• ✅ Check bank statements for consistency with reported revenues.
• ✅ Verify outstanding debts, loans, and overdrafts.
• ✅ Analyze tax returns filed and confirm there are no pending disputes.
• ✅ Review accounts receivable (who owes money, how old are the dues).
• ✅ Review accounts payable (suppliers/vendors waiting for payment).
• ✅ Confirm value and condition of assets (machinery, land, inventory, vehicles).
• ✅ Look at profit margins, sales trends, and seasonality.

2. Legal Due Diligence

• ✅ Verify business registration documents (Certificate of Incorporation, GST, PAN, TAN).
• ✅ Check all licenses and permits are valid (industry-specific approvals).
• ✅ Review MOA, AOA, partnership agreements, LLP deed (as applicable).
• ✅ Check for ongoing or past litigation (labour disputes, consumer cases, supplier cases).
• ✅ Verify intellectual property rights (patents, trademarks, copyrights).
• ✅ Review rental/lease agreements of office, factory, or warehouse.
• ✅ Ensure compliance with labour laws (PF, ESI, gratuity, bonus).

3. Operational Due Diligence

• ✅ Inspect machinery, IT systems, software, and equipment (age, efficiency, maintenance).
• ✅ Review supplier and vendor contracts (terms, duration, dependence on few suppliers).
• ✅ Check customer contracts (especially long-term or bulk buyers).
• ✅ Assess inventory quality (no expired, obsolete, or damaged stock).
• ✅ Review IT systems, ERP, or CRM software being used.
• ✅ Analyze business processes (are they well-documented or founder-dependent?).

4. Human Resource Due Diligence

• ✅ Review list of employees, their designations, and salaries.
• ✅ Check employment contracts and non-compete agreements.
• ✅ Verify PF/ESI contributions and labour law compliance.
• ✅ Understand dependency on key employees or the founder.
• ✅ Identify pending dues (gratuity, bonus, incentives).

5. Market & Strategic Due Diligence

• ✅ Analyze industry trends (growing, stable, or declining).
• ✅ Study competitor landscape (pricing, market share, threats).
• ✅ Review customer concentration risk (is revenue dependent on 1–2 clients?).
• ✅ Assess brand reputation and goodwill in the market.
• ✅ Check distribution channels, sales partners, and online presence.
• ✅ Evaluate growth potential & scalability of the business.

6. Valuation & Deal Structure

• ✅ Decide on valuation method (Asset-based, Income-based, or Market-based).
• ✅ Check if asking price includes goodwill (and whether it’s justified).
• ✅ Plan payment structure (lump sum, installments, or earn-out based on performance).
• ✅ Negotiate warranties and indemnities (seller takes responsibility for hidden liabilities).
• ✅ Finalize non-compete clause (seller cannot start same business immediately).

✅ Final Step: Professional Involvement

Before closing the deal:

• Hire a Chartered Accountant (CA) → for financial audit.
• Hire a Lawyer → for legal compliance, contracts, and liabilities.
• Hire an Industry Expert → for operational and market analysis.