Due diligence tests whether the financial story is supported by consistent records and credible assumptions. Preparation should begin before external questions arrive.
Reconcile the historical record
Complete bank, receivable, payable, tax, payroll, debt and intercompany reconciliations. Resolve old balances and document material accounting judgements.
Ensure management reports, statutory accounts and tax filings can be explained when they differ.
Explain revenue and profitability
Prepare analysis by customer, product, service, location or entity where relevant. Identify recurring, one-off and non-operating items.
Be ready to explain margin changes, customer concentration, churn and the quality of earnings.
Build an evidence-based forecast
Link revenue assumptions to pipeline, contracts, capacity and pricing. Support cost, headcount, capital expenditure and working-capital assumptions.
Include scenarios and explain how actual performance has compared with previous forecasts.
Organise cash, debt and obligations
Provide cash-flow history, current liquidity, debt terms, security, covenants and upcoming funding needs. Reconcile debt balances to lender statements.
Disclose material commitments, guarantees and contingent obligations.
Control the data room and Q&A
Use a structured index, consistent file naming, version control and access permissions. Assign owners to questions and review responses before release.
Track open items and ensure answers across finance, legal, tax and operations remain consistent.