Due Diligence - Tips & Tricks
Due Diligence is the most demanding phase of the acquisition process. Many companies start with a due diligence checklist in the public domain prepared by someone who has no knowledge of your organization or your deal. A prepared checklist such as this will likely not cover every aspect of the target company that is important to your organization. It is vital to carefully craft the list based on your business and your strategy for acquisition.
Here are a few tips & tricks to ease your due diligence process:
1. Let functional leaders create their due diligence list – I recommend starting your due diligence list by asking functional leaders from key areas of your organization (e.g. sales, marketing, operations, IT and finance) to develop a comprehensive list of questions that are specific to your company’s due diligence needs. Their list can then be supplemented by more standard due diligence lists.
2. Address & resolve potential issues – During the due diligence process, you will be evaluating the strengths and weaknesses of the target company. As potential issues arise, it is important to address it then and there with the seller to see if it can be resolved. You don’t want to waste time and money dealing with problems in integration that can be addressed during due diligence.
3. Seller’s Board Minutes – Request the seller’s board minutes. The minutes will give you an idea of what the board has discussed, and it will help you identify the most pressing issues facing the company. You will also likely see how those issues were resolved (or not) over a period of time.
4. Organizational Charts – Have each of your functional area leaders ask her counterpart on the sellers’ side to draw the organizational chart for the whole company or, if a large company, for their division. How the sellers’ executives perceive the structure of the company can tell you how the chain of command works in reality. Be sure that you do this in a casual environment, away from the office, so that the executives cannot simply hand over the printed corporate chart.
5. Map out the workflow process from sales to invoice – Again, there may be varying perceptions of what really happens, and you can compare these viewpoints with the picture you got from the CEO to ensure that everyone is on the same page.
6. Perform background checks and credit checks – You may think you know whom you are getting into business with, but sometimes, you will discover a skeleton that will make you think twice. It is important to do background checks and credit checks of all the key individuals you will be doing business with.
Call Capstone today if you are interested in pursuing proactive acquisitions or need assistance with an upcoming due diligence process.