Due diligence questions help auditors or investors understand a company’s financial stability and operations. Questions may focus on financial statements, projections, top clients, strategic relationships, competition, and operations. The purpose is to provide information to third parties to determine if the company is a good investment.
Due diligence questions help auditors or other outside parties probe a company’s business or financial operations. The questions are not necessarily intended to discredit company owners or executives, but they do help shed light on the company’s stability. Questions often focus on historical balance sheets, financial projections, top ten clients, strategic relationships, major competition, and strategic operations to maintain relevance in the business environment.
Can I see your last three years of financial statements?
Auditors ask these types of due diligence questions to determine whether statements are readily available and whether the company accurately maintains its financial records. These questions also provide auditors with an opportunity to review financial information to determine whether the company is maintaining records according to standard accounting principles.
What are your future financial projections?
Owners and managers are typically responsible for developing future sales projections. These projections help the company determine whether it needs to scale up or down in the future. Auditors will use these types of due diligence questions to ascertain the extent to which company management understands future changes in the local or national economy.
Who are your top ten customers?
This provides owners and managers with an opportunity to list clients for reviewers to interview to affirm the information provided by the company. These top ten customers can be by size, dollars, or sales volume, depending on how the company values its customers and clients.
What are your strategic relationships?
Strategic relationships represent companies that help a company produce goods and services. This due diligence question investigates how the company leverages its brand or other tangible and intangible value in the economic marketplace. Owners and managers can prove their reputation by demonstrating strong relationships with other companies.
Who are your main competitors?
Asking owners and managers to identify their top competitors demonstrates how well a company’s management team understands the business environment. The management team may also need to provide explanations as to why they determine a company is a major competitor.
Do you have strategic operations?
Most companies have strategic operations or core competencies that they use to produce goods or services. These help the company maintain a competitive edge. Auditors often ask this question to help define how much further they will need to review the company’s operations. Firms without strategic operations may have limited strengths compared to other businesses.
The purpose of these questions is usually to provide information to a third party. For example, investors and other business stakeholders will use this information to determine if a company is making a good investment or if it has question marks in its operations.
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