Due diligence report: What to include and how to write

A comprehensive due diligence report can address this challenge by providing a thorough analysis of the deal’s strategic alignment, potential risks, and opportunities for value creation.

The article explains what a due diligence report is, how to write it, and why using due diligence software can be beneficial.

What is a due diligence report?

A due diligence report contains a detailed summary of the due diligence findings, covering the financial, legal, operational, and strategic aspects of a business or investment opportunity. 

The due diligence report is typically written by the due diligence team, which may include professionals (financial analysts, lawyers, accountants) from the acquiring company, investment bank, or external consulting firms hired to conduct the assessment. 

Creating due diligence reports helps investors and businesses to:

1. Assess risk
   Investors can evaluate the risks associated with a potential investment, such as financial, legal, operational, and market risks.
2. Identify opportunities
   Investors can uncover growth, expansion, or optimization opportunities within the target company.
3. Make informed decisions
   Investors can make more informed decisions about whether to proceed with an investment, negotiate terms, or terminate a deal.

The information included in a due diligence report can vary depending on the deal type:

The type of information included in the report will also depend on the type of due diligence. For example, a financial due diligence report may focus on analyzing the company’s financial statements and tax returns while a vendor report may include information about suppliers or third-party partners that the target organization collaborates with.

Tip: A due diligence questionnaire is a great tool for streamlining the due diligence and report creation processes. It consists of a set of questions aimed at gathering detailed information from the target company or individual. It covers topics like finances, legal matters, operations, and compliance.

What to include in your due diligence report?

The due diligence report format may vary depending on the type of due diligence and its purpose. Here’s what’s commonly included: 

1. Executive summary
   Begin with a short and straightforward summary of the key due diligence findings. This section should provide a quick overview for stakeholders who may not have enough time to review the entire report thoroughly.
2. Company overview
   Give a quick overview of the company, its history, mission, products, target market, and achievements.
3. Purpose of due diligence
   Clearly state why the due diligence is conducted. Is it for an acquisition, merger, investment, or other reasons?
4. Financial due diligence
   Provide information on the company’s financial performance. This includes income statements, balance sheets, cash flow statements, and other relevant financial metrics. Additionally, assess any outstanding loans, debts, or financial obligations to understand the company’s financial health. 
5. Legal due diligence
   Give an overview of any existing legal issues, including ongoing lawsuits, disputes, or regulatory challenges. Review contracts, permits, and licenses to ensure compliance with legal requirements. Identify any potential liabilities or risks associated with legal matters that could impact the organization’s financial performance or reputation.
6. Operational due diligence
   Evaluate the efficiency of the company’s operations, covering production processes, supply chain management, and organizational structure. Also, assess management practices, IT infrastructure, customer relationships, and key agreements.
7. Market due diligence
   Provide an overview of the company’s marketing and sales strategies, including competitive analysis, market trends, and growth opportunities. Evaluate customer segmentation, satisfaction, and retention rates to identify growth opportunities.
8. Regulatory and environmental due diligence
   Review the company’s commitment to environmental sustainability and social responsibility, analyzing policies regarding energy consumption, waste management, and diversity initiatives.
9. Asset information
   Provide an overview of the organization’s assets, including physical assets such as property, machinery, and equipment, as well as intangible assets like intellectual property, patents, and trademarks. This helps assess the company’s overall worth and potential for future growth.
10. Risk management
    Provide a summary of operational, financial, and strategic risks, along with risk management policies and insurance coverage details. This section should describe potential vulnerabilities and mitigation measures.
11. Future growth prospects
    Assess the company’s potential for future growth and expansion, identifying growth opportunities, strategic partnerships, and acquisition targets. Provide recommendations for maximizing growth potential.
12. Conclusion and recommendations
    Summarize key findings and recommendations, describing identified risks and opportunities. Offer actionable steps for addressing issues and achieving long-term success.
13. Appendix
    Include relevant supporting documents, such as contracts, legal filings, financial models, and market research reports. The appendix should provide additional context for the findings presented in the report.

How to write a due diligence report in six steps?

Creating a comprehensive due diligence report requires adherence to best practices at each step of the process. Here are some guidelines to follow:

1. Include only relevant information. Don’t include every piece of information gathered during the investigation. Focus on data that can potentially influence the decision-making. Eliminate irrelevant details.
2. Know who you write for. Keep the target audience in mind when writing the report. Typically, it will be senior executives or stakeholders, as they are obliged to make strategic decisions. Bear their needs and preferences in mind and ensure the report is easy to understand.
3. Use templates. Leverage a due diligence report template to streamline the writing process and ensure consistency. A template provides a structured framework for organizing information effectively. You can also customize the template to suit the specific requirements and objectives of the due diligence.
4. Review and revise. After completing the initial draft, review and revise the report thoroughly. Ensure accuracy, coherence, and relevance of the content. Edit and eliminate irrelevant information. Consider seeking input from colleagues.
5. Take enough time. Take the time to conduct thorough research and document findings comprehensively. Rushing through the task may compromise the quality and accuracy of the final output.
6. Seek clarifications and legal assistance. Look for support or seek clarifications during the due diligence process and the report creation. If needed, engage legal experts to address legal or compliance issues and ensure thorough risk assessment.

How can due diligence software help with reports?

Due diligence software, also known as a virtual data room, is a secure online platform used for storing, sharing, and managing sensitive information during the due diligence process. It can also help streamline the process of creating due diligence reports by providing various tools and features.

One of the providers offering such tools and features is iDeals — a secure data room solution created back in 2008 and now serving over a million users globally.

Here’s the functionality it provides:

• Data storage and organization
  Centralize and organize all relevant information in one secure platform. With all data readily accessible, creating a comprehensive report becomes much easier and less time-consuming.
• Document management
  Easily upload, categorize, track, and manage the documentation involved in the due diligence, simplifying and streamlining the process.
• Collaboration tools
  Due diligence often involves multiple team members or stakeholders contributing to the investigation. iDeals due diligence software facilitates collaboration by offering functionality like real-time document sharing, commenting, version control, Q&A section, and notifications. 
• Security
  iDeals offers advanced security functionality to ensure the secure creation of reports within its platform. This includes features like two-factor authentication, granular 8-level permissions, user access expiration, dynamic watermarks, redaction, and fence view.
• Customer support services
  iDeals provides 24/7 customer support via chat, phone, and email, with respective response times of 30 seconds, 25 seconds, and 30 minutes. Its average case resolution time is just five minutes, ensuring users receive timely assistance throughout the due diligence report creation process.

iDeals virtual data room offers a free demo and a free trial. If you’re interested in exploring the solution, contact our team and test the platform yourself.

Key takeaways

• A due diligence report is a comprehensive document summarizing the findings of due diligence, covering financial, legal, operational, and strategic aspects of a business or investment opportunity.
• Due diligence reports help investors and businesses assess risks, identify opportunities, and make informed decisions about potential investments, mergers, acquisitions, or partnerships.
• Due diligence reports typically include an executive summary, company overview, purpose of due diligence, financial analysis, legal review, operational assessment, market analysis, regulatory compliance, asset information, growth prospects, recommendations, and appendix.
• Best practices for writing an effective report include focusing on the key details and adding only relevant information, using due diligence report examples, reviewing and revising the draft carefully, and seeking clarifications or legal assistance when needed.
• Due diligence software, such as iDeals virtual data room, offers features for data storage, organization, document management, collaboration, and security, streamlining the report creation process.