How to Create Your DIY Due Diligence Checklist

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In North America, in 2020, a shade under 18,000 mergers and acquisitions valued at over $1.1 trillion took place. That’s a huge amount despite a global recession halving the total spend in the investment sector.

Whether through a merger and acquisition or buying stocks, investing in a company can be risky. And, especially in these tough times, investors are being more careful with money than ever before.

So before you jump in at the deep end, here’s how you can build a due diligence checklist.

Think About Your End Goal

Why were you interested in making this acquisition? What’s your vision for the acquired business? Will it fit into your long-term strategic plan?

Think about how this deal fits in with the other companies in your portfolio and what steps would be required to streamline and align your portfolio for maximum productivity and profit.

Check Financial Records

Check the company’s annual report. It will have all the essential financial details and give you an idea of how much risk you are taking on.

If you struggle with analyzing numbers, hire a professional to assist with the analysis. Make sure you choose someone qualified and with a strong track record of success.

Analyze Company Performance

How is the company progressing? Is it successful, or has it had major setbacks recently?

Whatever the answer to these questions, you can break down and analyze the company performance to spot opportunities and see if there’s a strategy being used to grow sales and profits.

Analyze Risk

What risk factors could lead to disaster? Was there a problem with quality control or a major customer who decided to cut spending on the product line?

Risk analysis is vital as if you carelessly invest in a failing business model, factors such as these things could lead to bankruptcy.

Evaluate the Investment Agreement

The due diligence checklist is not a legal document. However, suppose you are having a difficult time persuading yourself to invest in a company. In that case, you should go over the terms of the agreement with your attorney and accountant.

This might be the moment when a lawyer tells you that it is in your best interests to invest in the company but does not want to waste his or her time on the deal unless they can help you.

Conduct Third-Party Research

Does a financial service firm have any clients you know who are similar? What is the risk presented by your new company compared to other companies with which your research firm is familiar?

If you are investing through a broker, you should also ask them for referrals to other companies that might be good investments.

Reflect on the Company’s Purpose and Values: What does the company do? What are the basic operating goals? Does it have any social responsibilities such as rewarding long-serving employees, participating in community development, or supporting environmental causes?

Always Use a Due Diligence Checklist

The most successful money managers often succeed by having due diligence process and avoiding emotional investment decisions. The old adage, “Buy low and sell high,” is not as useful as it once was as so many other factors come into play as well.

A due diligence checklist will clarify the situation in your mind before investing. And remember, if you’re stuck, never be afraid to ask for help in making the right decision.

If you’re looking for extra support get in touch today and let us invest in your future together.