The due diligence checklist every promoter should run first

Due diligence is the structured investigation a buyer, investor or lender runs before committing money to a business. Most promoters only encounter it from the receiving end — answering someone else's questions under someone else's timeline. Running an internal version of the same exercise first, well before a transaction is on the table, converts diligence from a source of anxiety into a checklist that can be worked through calmly. This article sets out that checklist across the areas a professional diligence team actually looks at.

Why running it on yourself first matters

Every issue found during a live transaction's due diligence becomes negotiating leverage for the other side — a reason to lower the price, add an indemnity, or delay closing. The same issue, found by the promoter's own team six months earlier, is simply a task with an owner and a deadline. The financial cost of fixing most gaps is small; the cost of them surfacing at the wrong moment is not.

Financial records

• Are the last three to five years of financials fully audited, or is some of that period still on provisional financials only used internally?
• Do accounting policies (revenue recognition, inventory valuation, depreciation) stay consistent year to year, and is any change clearly explained?
• Does GST returns analysis reconcile cleanly against reported turnover, with no unexplained gaps between the two?
• Are related-party transactions — sales, purchases, rent, loans to or from group entities — separately identified and priced on reasonable terms?
• Is tangible net worth calculable cleanly from the balance sheet, without intangibles or goodwill inflating the picture?

Legal and compliance

Corporate records

Statutory registers, board and shareholder resolutions, and filings with the Registrar of Companies should be current and complete. A surprisingly common gap is share transfers or allotments that happened in practice — money changed hands, ownership shifted — but were never properly documented or filed.

Contracts and licences

Key customer and supplier contracts, leases, and regulatory licences should be reviewed for whether they are current, assignable (relevant if the business is being sold or restructured), and held in the company's name rather than a promoter's personal name. Udyam registration status and category should also be current, since it affects eligibility for various support measures.

Litigation and disputes

Pending litigation, arbitration, labour disputes and tax demands under appeal should be listed with their current status and realistic exposure, rather than left undisclosed in the hope they resolve quietly before anyone asks.

Debt, guarantees and credit history

A commercial credit report should be pulled and reviewed the way an outside lender or buyer would see it — checking for any missed payments, restructured facilities, or entries that need explanation. All personal and corporate guarantees given by promoters or group entities in support of company borrowings should be listed, along with any cross-default clauses linking one lender's facility to another's.

Intellectual property and brand ownership

Trademarks, designs, domain names and any proprietary processes should be checked for who actually owns them on paper — it is common in founder-led businesses for a brand name or trademark to have been registered in a promoter's personal name early on and never formally assigned to the company, which becomes a real complication the moment a buyer, investor or lender wants clarity on what the company actually owns.

Operational and organisational items

1. Is the business dependent on one or two key people with no documented succession or delegation of authority?
2. Are customer contracts concentrated in a small number of accounts with no long-term commitments behind them?
3. Is inventory counted and valued consistently, and does it reconcile against the books at year end?
4. Are insurance policies (property, liability, key-person) current and adequate for the business's actual risk profile?
5. Is there a data room, even a basic one, where core documents are organised and ready to share when needed?

Tax exposure and HR checks worth adding

Tax positions taken aggressively

A tax position that was defensible when it was taken can look aggressive in hindsight to an outside reviewer, particularly around related-party pricing, expense classification, or claims made under specific incentive schemes. Reviewing the last several years of assessments, any positions under active dispute, and whether provisioning for contingent tax liabilities is adequate is worth doing before someone else's tax specialist does it first and treats every finding as a red flag rather than a known, managed position.

HR and statutory labour compliance

Provident fund, ESI, gratuity and bonus obligations, along with statutory registers for contract labour where used, are commonly under-checked areas in smaller businesses. A gap here rarely threatens a deal outright, but it does invite an indemnity or price adjustment, and it is far cheaper to regularise voluntarily than to negotiate around after a diligence team has already flagged it as a liability.

Insurance and physical asset checks

Physical assets — plant, machinery, vehicles, inventory — are worth walking through against the fixed asset register at least once before any transaction conversation starts, checking that assets recorded on the books actually exist, are in the location the records suggest, and are insured for something close to their real replacement value rather than an outdated figure carried forward year after year. Under-insurance is a common, easily fixed gap that otherwise sits quietly until a claim or a buyer's survey exposes it.

Making this a habit, not a one-off

Businesses that plan to raise capital, sell a stake, or eventually list benefit from running this kind of review annually rather than only when a transaction becomes likely. It keeps the gap between how the business actually operates and how it would look to an outsider consistently small, rather than letting it widen unnoticed over several years.