Private Equity due diligence checklist

7 minutes
October 25, 2022

PE firms evaluate up to 80 deals for each completed acquisition with deal closings requiring the dedicated effort of an average 3.1 subject matter relevant team members, over 20 meetings, and up to 4 rounds of negotiations to complete. This is where tools such as this “Private Equity Due Diligence Checklist” comes in handy, as a reference point to ensure that you’ve considered all the key points.

ScalingFunds due diligence checklist for PE

Due diligence starts with the confidential information memorandum (CIM) the seller provides and contains information such as:

  • Basic financials
  • Management team overview
  • Competitive landscape
  • Products, services, and pricing
  • Customer overview

While this document may be long, it is only the starting point of this engaged process. In Private Equity, one looks for problems in a company to get a better deal, but also for problems that can be addressed (e.g. underperforming management can be coached or replaced).

Initial screening

The fund’s investment criteria are typically the starting point of the process. Many prospective companies can therefore be excluded due to their financial profile, industry, geography, or the fund’s focus. Next, we look at a selection of key metrics to confirm and verify the following:

  • Market position
  • Revenue growth
  • Management track record
  • Competitive advantage
  • Cash flows
  • Capital requirements
  • Industry trends
  • Growth potential

Anecdotally the sooner you can say “No” to a prospect, the faster you move on to a better investment opportunity, so appropriately defining the initial screening criteria is key.

Checklist key elements

The most comprehensive due diligence checklists always include the following elements:

  • Finance
  • Taxes
  • Assets
  • IT
  • HR
  • Legal
  • Management
  • Competitive position
  • Cashflow (deep dive)
  • Total addressable market (TAM) and customer base
  • Capital requirements

Depending on your PE fund and target, you will add more categories to be comprehensive and make correct decisions. The due diligence questionnaire will provide many questions and requests to the seller, and the deal team can gather and confirm data via a desk study.  

Due diligence checklist deeper dive


Financial information tells a company’s story and is the most crucial focus for PE firms and sometimes the most challenging data to obtain. The finance list should contain the following elements:

  • Historical financial performance
  • Current financail statements
  • Accounting system
  • Financial projections
  • Balance sheet
  • Sales
  • Accounts payable
  • Contracts (for supplies, etc.)
  • Inventory
  • Bad debt and write-offs schedule
  • VC funding info


Analyze taxes to uncover ways to minimize liabilities and maximize profits:

  • Previous three years of local and state tax returns
  • All correspondence with tax authorities since the company's founding
  • R&D credit reports
  • Previous five-year tax examinations and audits.


Looking at tangible and intangible assets will help you understand the company’s liquidity:

  • Real estate (owned and leased)
  • Current Inventory
  • Owned and leased equipment
  • Fixed asset schedule and location
  • IP (trade secrets, copyrights, patents, trademarks)
  • Designs and patterns
  • All other assets


All hardware, software, and systems should be accounted for in the IT section of the PE due diligence checklist:

  • Software/Hardware
  • Software licenses owned
  • Analysis of IT systems, including data management, security, external IT agreements, and disaster recovery plans.  


Review structure, employees, and compensation:

  • Structure
  • Management
  • Employees, agreements, and compensation schedule
  • Contractors, consultants, outsourced services
  • Benefits
  • Workers comp/unemployment paid history
  • Employee resumes and NDAs
  • Hiring plans
  • Open employment offers


Confirm whether it is subject to current or future liabilities:

  • Headquarters/registered location
  • Article of incorporation, bylaws
  • Corporate filings
  • Regulatory issues
  • Compliance/statutory/environmental issues
  • Insurance 
  • Licenses/permits
  • Pending litigation
  • Annual Reports
  • Shareholders and holdings


Management may determine the target company’s success as a fund’s portfolio company:

  • Team members’ professional background
  • Qualitative assessment of the management team’s performance, strengths, and weaknesses
  • What management states they need from a buyer

Competitive Position

Review revenue streams, market position, competition, products, and services:

  • Current, future, and discontinued products and services
  • Sales for products and services
  • Product and service profitability and market share
  • Market share potential analysis
  • Regulatory documentation for products and services
  • List of competitors
  • SWOT analysis


Deep dive into the company cash flow to determine if provided numbers are accurate and if there are any immediate or upcoming cashflow issues or needs.

Total Addressable Market & Suppliers

Reviewing customers and suppliers:

  • Current customers (info, contracts, and invoices)
  • Length of customer relationships
  • Churn rates
  • Lifetime values
  • Acquisition costs
  • Supplier list, length of the relationship, contracts, and last negotiations
  • Supply chain review(looking for issues)

Capital Requirements

Understand capital needs for operations:

  • Needed working capital required for business
  • Capital versus operational expenditure breakdown
  • Fixed versus variable COGS breakdown
  • Seasons and demand cycles

Organisation and Checklist Implementation

Your team can use this checklist as a foundation for your comprehensive Due Diligence program. Put your final checklist in a centralized and shared location so all team members can access the information, prevent redundancies, and stay informed. 

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