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Are you prepared for Due Diligence?

By
Team Bilimoria
July 22, 2022

Due diligence is a process of analyzing a company’s potential, assessing the company’s financial viability at a comprehensive level, and examining the material facts related to the Company concerning a potential transaction. It is an investigation, audit, or review performed to validate facts or details of a matter under consideration.

Due diligence is an exhausting process that consumes significant time during the Fund-raise process. It is a deal maker or deal breaker process. Hence, the Company must be prepared for due diligence before going for a fund-raise.

It will not only help the Company to complete the fund-raise process seamlessly but will also help it to streamline its core as well support business functions like Finance and Accounts, Governance, Tax, Legal, Secretarial, etc.

In this article, we will lay out the key areas with which the Company needs to be ready.

The company shall perform detailed checks under each area below to prepare for Due Diligence.

  1. Financial Parameters
    1. Monthly MIS reports providing information on sales, costs, company performance, run rate, etc.
    2. Historical and current period financials including schedules, notes to accounts, balance sheet, profit and loss accounts, cash flow statements, and more.
    3. Breakdown of Assets & Liabilities; Income and Expenses
    4. Working Capital Analysis, Trade Receivables & Trade Payables with respective ageing schedules
    5. Inventory records, physical verification report, ageing, etc.
    6. Fixed Asset Register including information on cost, depreciation, sales value; physical verification report
    7. Bank Reconciliations, Cash register, Investment schedule
    8. Borrowings schedule including terms, interest rate, agreements
    9. Related party transactions
    10. Significant accounting policies adopted for preparing and presenting financial statements
    11. Details of any exceptional, prior period, or extraordinary item.
    12. Reconciliation between MIS and financial statements.

  1. Human Resource
    1. HR & Payroll Policies adopted by the company.
    2. Organization Structure of the company
    3. Monthly Payroll Sheets containing total cost to the company
    4. Agreement copies with KMP, Founders, Director
    5. Labour Compliances include ESIC, PF, MWIF, Professional tax, etc.
    6. Employment contracts with key terms like Confidentiality, Non-Solicit, IPR, etc.
    7. Employees evaluation reports and appraisal

  1. Taxation
    1. Tax Forms, Workings and Acknowledgement for all filed returns
    2. Outstanding dues on account of assessment, notice, or litigation against the company
    3. Tax reconciliations
    4. Detailed break-up of any balances with the revenue authority, etc.
    5. Tax withholding with the company
    6. Any tax opinion sought
    7. Compliance Calendar along with actual filing dates

  1. Secretarial
    1. Complete company details like registrations, KYC, certificates, etc.
    2. Patents, Trademark, IPR details
    3. Charter Documents like Memorandum of Association & Article of Association filed with the ROC
    4. Previously filed ROC forms for any corporate event,
    5. Registers, minutes, and resolutions maintained as per the Companies Act
    6. FEMA compliances in case of FDI

  1. Legal
    1. Shareholder’s Agreement
    2. Pending legal actions
    3. Property agreements
    4. Agreements with key vendors & key suppliers, etc.
    5. Insurance policies

The level of DD readiness may vary for each company based on the maturity of each company. The larger the company, the more stringent the requirements and vice versa.

Authors:

Shreyans Dedhia

| Partner |+919870925375|shreyans.dedhia@masd.co.in|LinkedIn Profile

Varsha Dhake

| Manager|+917039178008|varsha.dhake@masd.co.in|LinkedIn Profile

Riddesh Dalsaniya

|Associate Consultant|+917350556779|riddhesh.dalsaniya@masd.co.in|LinkedIn Profile

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In recent years, the rise of social media has given birth to a new and powerful profession: AN INFLUENCER What began as individuals sharing their personal lives, opinions, and talents online has now evolved into a full-fledged marketing industry. Influencers are people with a dedicated following on social media platforms like Instagram and YouTube who partner with brands to promote products and services in a relatable & authentic way. This form of marketing, known as influencer marketing, has gained immense attraction due to its ability to reach niche audiences and drive engagement.

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