The Due Diligence Process

Financial due diligence is not a checklist — it is a structured investigation with phases, escalation triggers, and kill criteria. The process should be time-bounded (typically 45-90 days), resource-planned (finance lead, legal support, technical assessment), and organized around the three questions that determine whether the deal proceeds: Is the revenue real? Are there hidden liabilities? Does the financial model hold?

1. Phase 1: Desktop Review (Days 1-14) Review provided financials, build the preliminary QoE, identify red flags, and create the detailed diligence request list. This phase determines whether the deal is worth pursuing further. A desktop review that reveals material misrepresentation or fundamentally broken unit economics can save the cost of a full diligence process.
2. Phase 2: Deep Dive (Days 15-45) Full financial forensics: cohort-level retention analysis, customer interviews, contract review, liability scan, model validation. This is the most resource-intensive phase and the one where most deal-breaking findings surface. Organize by workstream (revenue, expenses, liabilities, model) with weekly readouts to the deal team.
3. Phase 3: Findings and Structure (Days 45-60) Compile findings into a diligence report: key risks, valuation adjustments, and recommended deal structure. Present to the deal committee with a clear recommendation: proceed at adjusted terms, proceed with structural protections, or walk away. The report should quantify every finding — "some risk" is not a finding. "$400K in estimated exposure" is.