„Check first before you tie yourself down forever“ is a well-known saying by Friedrich Schiller and is an integral part of a successful due diligence preamble.
A thorough information and analysis of the company’s situation with its relevant economic, legal and tax circumstances, its earnings potential and the quality of its employees is the key, says Sebastian Greif of the IHK Niederrhein.
The IHK Niederrhein has published an interesting guidebook that contains important cornerstones of a risk assessment. These are:
- Location: Location, road access, neighbors, possible future site developments can be obtained from the local building authority
- Reputation: Are the customers satisfied with the product or service of the company? What about the payment behavior of the company towards the suppliers?
- Customers: What is the customer base of the customer?
- Employees: Is there a personnel overhang? Are both experienced and young skilled workers employed?
- Condition of the office or business premises: Defects should be recorded in writing; If the property is possibly contaminated by contaminated sites, you may find out at the Environmental Agency
- Condition of the business equipment, machinery, equipment, fleet, etc .: Let us present the following documents: Purchase and maintenance contracts, warranty service, expertise of the equipment / equipment suppliers, reports of the supervisory authorities, operating licenses)
- Financial situation (costs and income): Balance sheets, profit and loss accounts, possibly management report, inventory list, with which you can assess the development of sales and profits for the next 3 to 5 years. You should also take a look at: bank accounts, tax returns in recent years, the latest tax audit report, overview of all public funding and grants from the last 5 years
- Competition: Find out about the competitors you will be dealing with; How does your offer differ from the competition?
- existing contracts: show all existing contracts and confirm that he has shown you all contracts; Inquire about existing litigation, existing intellectual property rights and licenses
- Company Successes by Industry: Use industry metrics to see how the company compares to others.
The guidebook publishes important formulas for the earnings, substance and average method, provides know-how for goodwill determination and sales procedures and rounds off the topic of due diligence with general legal aspects. Due diligence recommends that sellers or insolvency administrators set up a virtual data room. Here you can control the above data encrypted and be viewed against password entry by the bidder. The Dataroom also offers the option of answering bidder questions via a so-called Q & A module. The dataroomX® German data room solution offers a great advantage by granting flexible reading rights: the bidder sees only the assigned files, so that the secrecy obligations for the respective addressee group are met. All PDF documents receive an automatic watermark with date stamp and name of the viewer. Even the watermark can be adjusted with the company name! The data rooms of dataroomX® are audit-proof and will be sealed by a notary upon request.
In summary: Successful due diligence requires good preparation based on checklists and detailed analysis of key figures. Datarooms provide a suitable platform to trust a particular group of individuals with timely access to the business metrics.