The due diligence checklist below is useful as a general list of items to checkout as part of a full vendor investigation prior to acquiring their business software. The checklist focuses on Profit & Loss Account, Balance Sheet, Notes to the Accounts, Audit Reports, Directors Reports, company history and independent credit checks. Obtain copies of the potential vendor's published accounts for the latest / previous 3 years and check them carefully. If you are unsure how to proceed, get your accountants or procurement involved.

PROFIT & LOSS ACCOUNT

Profit & Loss Account - look for trends, growth, unusual occurrences: Turnover / revenues - what is the mix of income? Is it from new sales or maintenance/support from old sales? Are they unduly reliant on one or a few income sources? How many new customers did they sign up last year? Are they growing or shrinking in size? If growing - is it organic, or from mergers and takeovers? If shrinking - is it due to divesting non-core business or other reasons? Expenditures - what are they spending on? Are there any large one-off or unexpected costs? How much of annual expenditure is spent on research and development, customer support, marketing and administration? How much are these as a % of sales? And how do these compare with the industry norms? Profits or losses - what are the trends?

BALANCE SHEET

Balance Sheet - look for trends, growth, unusual occurrences: Assets - have they added or disposed of large assets recently? Are additions appropriate eg have they bought expensive cars rather than investing in research and development? Cash - how much do they have? Check the cash flow statements for where is it being spent. Liabilities - check both the short term and long term liabilities - how large are they? Are they growing? Have new loans been taken out? Share capital - what is the share ownership? Is it independently owned, a subsidiary of a larger corporation, or part of a private equity firm? Is the capital structure clear or complex eg in multiple offshore companies? Calculate ratios for each year eg current assets to current liabilities, return on capital, working capital requirements and check for trends

NOTES TO THE ACCOUNTS

Check the Notes to the Accounts and look for: Any questionable accounting assumptions Changes to the accounting methods and assumptions Unusual or complex arrangements Contingent liabilities Upcoming legal actions Post balance sheet events and any potential impacts Bad debts provisions

AUDIT REPORTS

Check the Audit Reports and look for: Clean audit report statements If there are any audit comments - investigate further Changes of auditor over the last 3 years and reasons for this. Did the auditor resign? Or did the company instigate the change?

DIRECTORS REPORTS

Check the Directors Reports and look for: Comments either in the previous or current years, of anticipated major changes to the business eg reorganisation, takeover etc Changes to senior management, directors Strategic alliances with other organisations Expansion or relocation plans

COMPANY HISTORY

When, where and who founded the company? Are the original owners still involved or have there been changes in the ownership? Has the original corporate location changed? What is the management team's background, history Has the company tried to sell itself? Or merge with another?

INDEPENDENT CREDIT CHECK

Get an independent / third party credit check on the vendor and their accounts? Are you satisfied with them? Are there areas of concern? What is the probability of insolvency / z-score for the company? For more due diligence checklists and questions, visit: Software vendor support, Implementation support, Reference site visit checklist, Vendor accounts, Vendor personnel, Vendor software product development, Software payment terms, Final software decision, Software agreement checklist

Due Diligence - Vendor Accounts

Checklist to quickly identify any issues with a potential software vendor’s accounts and financials

Axia Consulting

© 2020 Axia Consulting Ltd. All rights reserved.
17 New Road Avenue, Chatham, Kent ME5 9RL, United Kingdom Contact Us
The due diligence checklist below is useful as a general list of items to checkout as part of a full vendor investigation prior to acquiring their business software. The checklist focuses on Profit & Loss Account, Balance Sheet, Notes to the Accounts, Audit Reports, Directors Reports, company history and independent credit checks. Obtain copies of the potential vendor's published accounts for the latest / previous 3 years and check them carefully. If you are unsure how to proceed, get your accountants or procurement involved.

PROFIT & LOSS ACCOUNT

Profit & Loss Account - look for trends, growth, unusual occurrences: Turnover / revenues - what is the mix of income? Is it from new sales or maintenance/support from old sales? Are they unduly reliant on one or a few income sources? How many new customers did they sign up last year? Are they growing or shrinking in size? If growing - is it organic, or from mergers and takeovers? If shrinking - is it due to divesting non-core business or other reasons? Expenditures - what are they spending on? Are there any large one-off or unexpected costs? How much of annual expenditure is spent on research and development, customer support, marketing and administration? How much are these as a % of sales? And how do these compare with the industry norms? Profits or losses - what are the trends?

BALANCE SHEET

Balance Sheet - look for trends, growth, unusual occurrences: Assets - have they added or disposed of large assets recently? Are additions appropriate eg have they bought expensive cars rather than investing in research and development? Cash - how much do they have? Check the cash flow statements for where is it being spent. Liabilities - check both the short term and long term liabilities - how large are they? Are they growing? Have new loans been taken out? Share capital - what is the share ownership? Is it independently owned, a subsidiary of a larger corporation, or part of a private equity firm? Is the capital structure clear or complex eg in multiple offshore companies? Calculate ratios for each year eg current assets to current liabilities, return on capital, working capital requirements and check for trends

NOTES TO THE ACCOUNTS

Check the Notes to the Accounts and look for: Any questionable accounting assumptions Changes to the accounting methods and assumptions Unusual or complex arrangements Contingent liabilities Upcoming legal actions Post balance sheet events and any potential impacts Bad debts provisions

AUDIT REPORTS

Check the Audit Reports and look for: Clean audit report statements If there are any audit comments - investigate further Changes of auditor over the last 3 years and reasons for this. Did the auditor resign? Or did the company instigate the change?

DIRECTORS REPORTS

Check the Directors Reports and look for: Comments either in the previous or current years, of anticipated major changes to the business eg reorganisation, takeover etc Changes to senior management, directors Strategic alliances with other organisations Expansion or relocation plans

COMPANY HISTORY

When, where and who founded the company? Are the original owners still involved or have there been changes in the ownership? Has the original corporate location changed? What is the management team's background, history Has the company tried to sell itself? Or merge with another?

INDEPENDENT CREDIT CHECK

Get an independent / third party credit check on the vendor and their accounts? Are you satisfied with them? Are there areas of concern? What is the probability of insolvency / z-score for the company? For more due diligence checklists and questions, visit: Software vendor support, Implementation support, Reference site visit checklist, Vendor accounts, Vendor personnel, Vendor software product development, Software payment terms, Final software decision, Software agreement checklist
Due Diligence - Vendor Accounts Checklist to quickly identify any issues with a potential software vendor’s accounts and financials
© 2020 Axia Consulting Ltd
All rights reserved. Contact Us

Axia Consulting