Due Diligence Checklist

When preparing for an acquisition, small businesses must ensure they have a comprehensive set of documents ready for due diligence. This process allows potential buyers to assess the company's value, risks, and potential. The following checklist covers the crucial documents that small businesses should prepare.

1. Corporate Documents:

  • Articles of Incorporation/Organization: These documents provide proof of the company's legal existence and outline its structure.

  • Bylaws or Operating Agreement or Shareholder Agreement: Details the rules that govern the internal management of the company.

  • Minutes of Board and Shareholder Meetings: A record of all major decisions taken by the company's leadership, if you kept such records.

2. Financial Records:

  • Financial Statements: Profit and loss statements, balance sheets, and cash flow statements for at least the past three years.

  • Tax Returns: Federal and state tax returns for the past three to five years.

  • Debt Disclosure: Information on existing debts, loans, and credit lines.

3. Intellectual Property:

  • Registrations: List of all registered and pending trademarks, copyrights, and patents.

  • Licenses: Documentation of all intellectual property licenses held or used by the business.

  • IP Litigation History: Records of any past or ongoing intellectual property disputes.

4. Contracts

  • Contracts and Agreements: Includes customer contracts, supplier agreements, and any other significant contracts.

  • Employment Agreements: Contracts with key employees, including terms of employment and any non-compete clauses.

5. Disputes & Litigations

  • Litigation /Dispute Documents: Details of past, current, or known potential disputes or legal proceedings involving the company.

6. Human Resources Documents:

  • Organizational Chart: A clear depiction of the company’s structure.

  • Employee Records: Including employment contracts, benefits information, and any collective bargaining agreements.

  • Policies and Procedures Manuals: Documentation of internal policies, employee handbooks, and operational procedures.

7. Asset Inventory:

  • Physical Assets: List of all significant physical assets owned or leased by the company.

  • Intellectual Property Assets: Detailed inventory of all intellectual property assets.

  • Real Estate Holdings: Information on any real estate owned or leased by the business.

Preparing a thorough set of due diligence documents is crucial for any small business looking to be acquired. These documents provide potential buyers with a clear picture of the business’s health, operations, and potential risks. By ensuring these documents are accurate, up-to-date, and comprehensive, a small business can facilitate a smoother acquisition process.