Bankers Factoring Due Diligence Checklist

Buying or Selling a Business? Nail the Due Diligence.

When buying or selling a business, getting the due diligence right is a key first step. Here is the due diligence checklist used by our sister companies Bankers Advocate and Business Appraisal Florida over the last two decades modified for these times. You can reproduce this due diligence checklist but please include this URL if you do so.

What is Due Diligence? When buying or selling a business, due diligence is the process where a buyer (or a seller being prepared) studies and checks the employees, operations, sales, marketing, ownership, financial, assets, intellectual property, corporate, and legal structure of a business to make sure there are no uknown risks and the goodwill or profit making machine really exists for the price a buyer is paying.

In the process of selling your business, remember you get one chance at making a good first impression with potential business buyers. Your business can stand out against those poorly presented businesses for sale without any of their red flags. A strong balance sheet with solid financial records and a handle on your cash flow will put you in the top 5% of business owners for potential buyers. Finding the right buyer and holding the purchase price becomes easier with or without a business broker.

If you are buying a business, imagine if a solid company has done all the due diligence work earlier and made it part of their daily operations. A great “pre-mortem” will confirm the decision to buy a company versus starting a business from scratch.

Bankers Factoring Due Diligence Checklist

A. Organization and Good Standing

• The Company’s Articles of Incorporation and all amendments.

• The Company’s Bylaws and all amendments.

• The Company’s minute book, including all minutes and resolutions of shareholders and directors, executive committees, and other governing groups.

• The Company’s organizational chart.

• The Company’s list of shareholders and the number of shares held by each.

• Copies of agreements relating to options, voting trusts, warrants, puts, calls, subscriptions, and convertible securities.

• A Certificate of Good Standing from the Secretary of State of the state where the Company is incorporated.

• Copies of the active status report in the state of incorporation for the last three years

• A list of all states where the Company is authorized to do business and annual reports for the last three years.

• A list of all states, provinces, or countries where the Company owns or leases property, maintains employees or conducts business.

• A list of all of the Company’s assumed names and copies of registrations thereof.

B. Financial Information

• Audited/Compiled/Reviewed financial statements for three years, together with Auditor’s Reports.

• The most recent unaudited statements, with comparable statements to the prior year.

• Auditor’s letters and replies for the past five years (if applicable).

• The Company’s credit report (Bankers Factoring can help with this).

• Any projections, capital budgets, and strategic plans.

• Analyst reports, if available.

• A schedule of all indebtedness and contingent liabilities.

• A schedule of inventory.
• A schedule of accounts receivable.
• A schedule of accounts payable.
• A description of depreciation and amortization methods and changes in accounting methods over the past five years.
• Any analysis of fixed and variable expenses.
• Any analysis of gross margins.
• The Company’s general ledger.
• A description of the Company’s internal control procedures.

C. Physical Assets

• A schedule of fixed assets and the locations thereof.
• All U.C.C. filings.
• All leases of equipment.
• A schedule of sales and purchases of major capital equipment during the last three years.

D. Real Estate

• A schedule of the Company’s business locations.
• Copies of all real estate leases, deeds, mortgages, title policies, surveys, zoning approvals, variances, or use permits.

E. Intellectual Property

• A schedule of local and foreign patents and patent applications.
• A schedule of trademarks and trade names.
• A schedule of all websites, social media sites, and telephone numbers.
• A schedule of copyrights.
• A description of important technical knowledge, expertise, and “secret sauce.”
• A description of methods used to protect trade secrets, knowledge, expertise, and “secret sauce.”
• Any “work for hire” agreements.
• A schedule and copies of all consulting agreements, agreements regarding inventions, and licenses or assignments of intellectual property to or from the Company.
• Any patent clearance documents.
• A schedule and summary of any claims or threatened claims by or against the Company regarding intellectual property.

F. Employees and Employee Benefits

• A list of employees includes positions, current salaries, salaries, bonuses paid during the last three years, and years of service.
• All employment, consulting, nondisclosure, non-solicitation, or noncompetition agreements between the Company and any of its employees.
• Resumés of key employees
• The Company’s personnel handbook and a schedule of all employee benefits and holiday, vacation, and sick leave policies.
• Summary plan descriptions of qualified and non-qualified retirement plans
• Copies of collective bargaining agreements, if any.
• A description of all employee problems within the last three years, including alleged wrongful termination, harassment, and discrimination.
• A description of any labor disputes, requests for arbitration, or grievance procedures currently pending or settled within the last three years.
• A list and description of benefits of all employee health and welfare insurance policies or self-funded arrangements.
• A description of the worker’s compensation claim history.
• A description of unemployment insurance claims history.
• Copies of all stock option and stock purchase plans and a schedule of grants thereunder.

G. Licenses and Permits

• Copies of any governmental licenses, permits, or consents.
• Any correspondence or documents relating to any proceedings of any regulatory agency.

H. Environmental Issues

• Environmental audits, if any, for each property leased by the Company.
• A listing of hazardous substances used in the Company’s operations.
• A description of the Company’s disposal methods.
• A list of environmental permits and licenses.
• Copies of all correspondence, notices, and files related to EPA, state, or local regulatory agencies.
• A list identifying and describing any environmental litigation or investigations.
• A list identifying and describing any known superfund exposure.
• A list identifying and describing any contingent environmental liabilities or continuing indemnification obligations.

I. Taxes

• Federal, state, local, and foreign income tax returns for the last three years.
• State sales tax returns for the last three years.
• Any audit and revenue agency reports.
• Any tax settlement documents for the last three years.
• Employment tax filings for three years.
• Excise tax filings for three years.
• Any tax liens.

J. Material Contracts

• A schedule of all subsidiaries, partnership, or joint venture relationships and obligations, with copies of all related agreements.
• Copies of all contracts between the Company and any officers, directors, shareholders, or affiliates.
• All loan agreements, bank financing arrangements, lines of credit, or promissory notes to which the Company is a party.
• All security agreements, mortgages, indentures, collateral pledges, and similar agreements.
• All guarantees to which the Company is a party.
• Any installment sale agreements.
• Any distribution, sales representative, marketing, and supply agreements.
• Any letters of intent, contracts, and closing transcripts from any mergers, acquisitions, or divestitures within the last five years.
• Any options and stock purchase agreements involving interests in other companies.
• The Company’s standard quote, purchase order, invoice, and warranty forms.
• All nondisclosure or noncompetition agreements to which the Company is a party.
• All other material contracts.

K. Product or Service Lines

• A list of all existing products or services and products or services under development.
• Copies of all correspondence and reports related to any regulatory approvals or disapprovals of any Company’s products or services.
• A summary of all complaints or warranty claims.
• A summary of the results of all tests, evaluations, studies, surveys, and other data regarding current products or services and products or services under development.

L. Customer Information

• A schedule of the Company’s twelve largest customers in terms of sales thereto and a description of sales thereto over a period of two years.
• Any supply or service agreements, both short and long-term.
• A description or copy of the Company’s purchasing policies.
• A description or copy of the Company’s credit policy.
• A schedule of not filled orders.
• A list and explanation for major customers lost over the last two years.
• All surveys and market research reports are relevant to the Company or its products or services.
• The Company’s current advertising programs, marketing plans and budgets, and printed marketing materials.
• A description of the Company’s major competitors.

M. Litigation

• A schedule of all pending litigation.
• A description of any threatened litigation.
• Copies of insurance policies providing coverage as to pending or threatened litigation.
• Documents relating to any injunctions, consent decrees, or settlements to which the Company is a party.
• A list of not satisfied judgments.

N. Insurance Coverage

• A schedule and copies of the Company’s general liability, personal and real property, product liability, errors and lapses, key-man, directors and officers, worker’s compensation, and other insurance.
• A schedule of the Company’s insurance claims history for the past three years.

O. Professionals

• A schedule of all law firms, accounting firms, consulting firms, and similar professionals engaged by the Company during the past five years.

P. Articles and Publicity

• Copies of all articles and press releases about the Company within the past three years.

Q. IT, Software, Firewall, Internet Security Risk

• All software licensed and updated? List of all software and licenses.
• The list off all servers, PCs, firewalls, routers, and laptops.
• List of all phone numbers and VOIP suppliers.
• Cloud services & Internet account login list.
• Any data breaches or malware attacks in the last 4 years.

Do you need help funding the purchase of a company with solid accounts receivable? The owner employees of Bankers Factoring want to help you acquire your dream target company.

Ready for the owner-employees of Bankers Factoring to fund your purchase of a company? Call 866-598-4295 or go to Bankers-Factoring-Application.

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