Due Diligence is the investigative process a company must go through before entering into an M&A transaction, and it’s a very demanding process. During this due diligence, the smallest details of your business are investigated, creating a transparent system in front of potential buyers. The process can be extremely time-consuming, as buyers need to confirm facts, reduce risks and remove any doubts. In this article, we will describe the due diligence checklist for acquiring a manufacturing company.
How to Solve this Due Diligence Checklist
Many buying companies only look at the due diligence process from a financial perspective, but they should also look at the quality of the seller’s services. Whether revenues are a systemic indicator of the quality of production, service, and delivery. If you notice repeated charges or refunds among the data you should find out the reason for them before agreeing to a transaction.
Conducting a refund reason analysis can give buyers important information about what problems they can expect with a particular person, company department, or part of the contract. After all, under certain conditions, if not noticed in time, you may sign yourself up for a mandatory inventory buyback.
Key due diligence steps for manufacturing companies
The due diligence checklist is a solid backbone for every company and will help you examine every aspect of the potential seller’s business in detail. With this checklist, you will find any problems easier to detect and you can more profitably allocate your limited resources to the exact industry that needs to be upgraded and improved. Below we outline the main aspects to include in a due diligence checklist:
- Financial information
Manufacturers must keep detailed financial records to assure that they are using their resources specifically to grow that business. Accordingly, your due diligence process checklist should include monitoring the vendor’s accounting and financial departments. This will help you isolate for yourself all the information you need about the company’s expenses, various financial processes and procedures, accounting, and internal controls. The company’s finance department should give a clear answer about how the organization maintains its assets, manages its funds, and limits its liabilities.
- Marketing Efforts
In addition to developing its products, a manufacturing business must also take care of how to market it in a competitive market. Include a question on your checklist about how marketing-related tasks are handled. Carefully examine how the company develops a marketing plan and what it includes, how competitor research and analysis of budget and requirements of potential customers are conducted. It is also worth finding out about all the possible risks of the producer’s marketing strategy and his possibilities of putting the plan into practice according to the means at his disposal.
- Management analysis
During the due diligence, the selling company should create an organizational chart of which roles the various employees have and what responsibilities they have according to these roles, as well as a summary of the employees, the characteristics of all the high-ranking persons. The checklist can also include information about executive compensation, including stock options, profit sharing, and bonuses.
- Legal issues
The legal side of the deal also plays a big role. The company should have information about lawsuits that have been filed against the company and lawsuits that the company itself has filed against other parties. Also, the company should have data on insurance policies, environmental hazards, and compliance with government regulations and policies.