What are the Best Due Diligence Questions?

Due diligence questions help auditors or other external parties probe into a company’s business or financial operations. Questions are not necessarily meant to discredit the owners or managers of the company, but they do help shed light on the stability of the company. Questions often center on historical financial statements, financial projections, top ten customers, strategic relationships, major competition, and strategic operations for maintaining relevance in the business environment.

Can I see your past three years of financial statements? Auditors ask this type of due diligence questions to determine if the statements are readily available and if the company accurately maintains their financial records. These questions also provide auditors with the ability to review financial information to determine if the company maintains documents according to standard accounting standards.

What are your future financial projections? Owners and managers are typically responsible for developing future sales projections. These projections help the company determine if they need to increase or decrease operations in the future. Auditors will use these types of due diligence questions to ascertain how well the company’s management understands future changes in the local or national economy.

Who are your top ten customers? This provides owners and managers an opportunity to list customers that auditors can interview to affirm the information given by the company. These top ten customers can be either by size, dollars, or volume sales, depending on how the company values its clients and customers.

What are your strategic relationships? Strategic relationships represent the companies that help a company produce goods and services. This due diligence question probes into how the company leverages its brand name or other tangible and intangible value in the economic market. Owners and managers can prove their reputation by showing strong relationships with other companies.

Who are your major competitors? Asking owners and managers to identify their major competitors proves how well a company’s management team understands the business environment. The management team may also need to give explanations on why they determine a company to be a major competitor.

Do you have any strategic operations? Most companies have strategic operations or core competencies they use to produce goods or services. These help the company maintain a competitive edge. Auditors will often ask this question to help define how much further they will need to review the company’s operations. Companies with no strategic operations may have limited strengths compared to other businesses.

The purpose of these questions is typically to provide information to a third party. For example, investors and other business stakeholders will use this information to determine if a company will make a good investment or if it has some question marks in its operations.