The due diligence process is used by a buyer to assess the benefits and liabilities of a proposed acquisition by researching all relevant aspects of the past, present, and predictable future of the business.

The seller should be aware that the due diligence process begins from the moment a buyer identifies his company as a possible purchase. The impression that a buyer gets in the early stages of his investigations will critically shape his view of whether this is a "good deal" or not and will therefore set the tone of the negotiations.

To proceed, the buyer needs to analyze the company in greater depth to determine whether everything has been represented properly, whether he or she indeed wants to buy the company, and, if so, the appropriate price to pay. This in-depth analysis is known as due diligence.

The actual procedures are tailored to each specific situation. The primary objectives include evaluations of all key operational areas of the business, a review of all legal and contractual aspects of the business, and an analysis of the financial statements to identify exactly what you are buying and to identify and quantify the potential risks and rewards.

The due diligence will want to gather as much information as possible about the business. The investigation might possibly include the following:

Profit &Loss Statements: Monthly financial statements for the last 2 to 3 years and for current year-to-date. Possibly balance sheets.

Accounts Receivable (A/R) trial balance for most recent month, Accounts Payable (A/P) trial balance for most recent month and Description and analysis of any other Payables or Receivables.

Copies of any recent real estate or equipment appraisals.

Products and Services overview, brochures, price lists, product literature, etc.

Stock Movement and Holding: Inventory listing for most recent month Sales history and projections.

Banking Statements: Deposit Books and cashbook.

Details of any development work currently being done: Work in progress, Estimate of cost and schedule to complete work.

Staffing: Resumes/background of key personnel, Breakdown of employees by department, Copies of any employment agreements, Description of any employee benefit plans, Details of any labor contracts or agreements