The financial information buyers, investors and lenders request to test earnings, cash and debt before they agree a price – organised as a numbered data room index.
Financial due diligence is where the valuation is tested. The buyer's accountants rebuild the target's earnings from the ledgers, remove one-off and non-recurring items to arrive at an adjusted EBITDA, define the normal level of working capital and identify every item that should be treated as debt. Each of those findings can move the price directly, especially in deals priced on a multiple of EBITDA with a cash-free, debt-free adjustment.
Most of the requests below can be prepared from your accounting system before a buyer appears. The biggest time savings come from reconciliations: monthly management accounts that tie to the audited statements, revenue by customer that ties to the ledger and a clear bridge from reported to adjusted EBITDA. A seller who provides those up front controls the narrative; a seller who does not will spend weeks answering follow-up questions.
Numbered like a data room index: use the sections as folders and keep the numbers in file names.
The CSV opens in Excel, Numbers or Google Sheets. A practical starting point – adapt it to your deal and jurisdiction with your advisers.
The buyer's transaction services accountants, the investor's finance team or a private equity fund's advisers; lenders financing the deal rely on the same report.
Often 3–6 weeks of fieldwork after the letter of intent, longer if the accounts need restating or the data is spread across several systems.
An analysis, usually by independent accountants, that adjusts reported EBITDA for one-off, non-recurring and non-operating items to show sustainable earnings. Buyers use it to test the earnings multiple; sellers sometimes commission one in advance (a vendor QoE).
Audited statements for about three years, monthly management accounts, general ledger and trial balances, revenue and cost analyses, working capital and debt schedules, bank statements, and the budget and forecast with assumptions.
Most purchase agreements set a target ("peg") for normal working capital; the price goes up or down if actual working capital at closing differs. The historical monthly analysis is used to set that peg.
Liabilities that are not bank debt but reduce the value to the buyer, for example deferred consideration, unpaid tax, accrued bonuses, customer deposits or underfunded pensions. They are negotiated into the net debt deduction.
Three years of annual data and 24–36 months of monthly data is a common request; younger companies provide everything since incorporation.