As a startup founder, you've most likely put in countless hours building your company. When it comes time to seek outside funding or merge with another company, however, you must go through a due diligence process. Potential investors or partners will examine your company's financial and legal records to ensure that it is a good investment. Preparing for due diligence can be a difficult task, but with the right checklist, you can streamline the process and ensure your success. In this article, we'll go over the most important aspects of due diligence and provide a checklist for startups to use.
What is Due Diligence?
Due diligence is a thorough review process that occurs when one party wishes to acquire or invest in the business of another. The potential investor or acquirer will review various aspects of the business during this process to ensure that it is a good investment. Due diligence usually entails going over the company's financial statements, legal documents, intellectual property, customer contracts, and employee agreements. Due diligence seeks to identify any risks or issues that may affect the investment or acquisition.
Getting Ready for Due Diligence
Due diligence preparation is a critical step for any startup seeking outside funding or considering a merger. The process can be intimidating, but with the right checklist, you can ensure you're well-prepared for the review. When preparing for due diligence, keep the following points in mind:
A review of your financial records is one of the most important aspects of due diligence. Investors and acquirers will want to see your financial statements, tax returns, bank statements, and any other financial documents that provide information about the financial health of your business. It is critical to keep your financial records up to date and accurate. In addition, you should be prepared to explain any discrepancies or fluctuations in your financial statements.
Documents of Legal Importance
Investors and acquirers will also want to look over your legal documents, such as your articles of incorporation, bylaws, operating agreements, shareholder agreements, and any other legal agreements that are relevant to your business. It is critical that these documents are current, accurate, and legally binding. Any inconsistencies or issues with your legal documents may cause potential investors or acquirers to raise red flags.
Intellectual Property Rights
Another important aspect of due diligence is your intellectual property. Any patents, trademarks, copyrights, or other intellectual property that your company owns will be scrutinized by investors or acquirers. It is critical to protect your intellectual property and have the necessary documentation to prove ownership. You should also be prepared to explain how your intellectual property fits into your company's overall strategy and how it gives you a competitive advantage.
Contracts with Customers
Investors or acquirers will want to look over your customer contracts to get a better understanding of your revenue streams and customer relationships. It's critical to make sure your customer contracts are up to date, legally binding, and that you understand your contractual obligations. In addition, you should be prepared to explain any unusual contract terms or provisions.
Employee agreements are another important aspect of due diligence. Investors or acquirers will want to look over your employment contracts, including non-compete and non-disclosure agreements, as well as any other relevant contracts. It is critical to ensure that these agreements are legally binding and that you are in accordance with any applicable employment laws. You should also be ready to explain any unusual clauses in your employment contracts.
Checklist for New Businesses
Now that you've identified the key components of due diligence, it's time to create a checklist to ensure you're well-prepared for the review. Here is a checklist of things startups should think about when preparing for due diligence:
Last three years' profit and loss statement Last three years' balance sheet
Last three years' cash flow statement
Tax returns from the previous three years
Bank statements from the previous six months
Reports on accounts payable and receivable
Loan agreements and outstanding debt
Bylaws and articles of incorporation
Shareholder agreements and operating agreements
Vendor and supplier contracts
Any ongoing or previous legal proceedings
Non-disclosure agreements and employment contracts
Leases and real estate contracts
Intellectual Property Rights:
Copyright, patents, and trademarks
Agreements on licensing
Trade secrets and confidential information
Any ongoing or previous intellectual property disputes
Contracts with Customers:
Contracts with key clients
Pricing and billing agreements
There are no service level agreements or guarantees.
Customer retention rates and projected growth
Employment contracts and offer letters
Non-compete and confidentiality agreements
Policies and procedures for employees
Observance of labor laws and regulations
Collaboration with WOWS Advisory Services
Due diligence preparation can be a daunting task, and it is critical to have the right guidance and support. WOWS Advisory Services can help with that. WOWS Global is the most active investor matching platform in South-East Asia, connecting startups with potential investors. Their team of experts has years of industry experience and can provide valuable insights and guidance to help you navigate the due diligence process.
WOWS Advisory Services provides a variety of services such as financial and legal due diligence, intellectual property evaluation, contract review, and risk assessment. Their expert team can assist you in identifying potential risks and issues, making recommendations for improvement, and ensuring that you are well-prepared for the review. With WOWS Global on your side, you can be confident that you are presenting your company in the best light possible.
Due diligence preparation is a critical step for any startup seeking outside funding or considering a merger. Following the checklist outlined in this article will ensure that you are well-prepared for the review and that potential investors or acquirers see your company in the best light possible. If you require additional guidance and support, partnering with WOWS Advisory Services can provide the expertise and insights you require to confidently navigate the due diligence process.
Contact WOWS Global today at email@example.com to learn more about our services and how we can help you grow your business.