Due Diligence
What due diligence actually checks before you buy a company
Due diligence is not an audit. It answers a different question: is the price justified by what the business really earns?
Sample content
An audit certifies that accounts comply with a framework. Due diligence asks whether the earnings presented will still exist next year, under a new owner, without the seller.
The core of the work is normalisation: removing what happened only once, adding what the seller stopped paying, restating what a buyer will have to pay again.
The second axis is cash. A business with strong profit and permanently negative operating cash flow is either growing very fast or converting nothing into money.
The third axis is dependency: one client, one supplier, one person. A concentration that the seller calls a strength is usually the buyer’s main risk.
A good due diligence report is short. It says what changes the price, what changes the contract, and what should stop the transaction.