Why FP&A is centre stage in due diligence
Whether your business is raising a funding round, pursuing an acquisition, or exploring a sale, the due diligence process will place intense scrutiny on your financial data, models, and planning processes. Investors and acquirers want to understand not just what the numbers say, but how they are produced and how reliable they are.
A well-prepared FP&A function accelerates the process, builds buyer confidence, and can materially impact valuation. A poorly prepared one creates delays, raises red flags, and erodes trust.
The financial data checklist
Historical financials (3 years minimum). Monthly P&L, balance sheet, and cash flow. Audited annual accounts. Management accounts that reconcile to the statutory filings. Any restatements or adjustments should be documented and explained.
Revenue detail. Revenue by customer, by product, by geography, and by contract type. Cohort analysis showing retention and expansion trends. Deferred revenue and contracted future revenue schedules.
Cost detail. Headcount and compensation data by department. Vendor contracts with terms and renewal dates. One-off versus recurring cost classification. Normalised EBITDA adjustments clearly documented.
Working capital. Aged debtors and creditors analysis. Historical debtor days and creditor days trends. Any material overdue receivables with collectibility assessment.
Cash flow. Monthly actual cash flow for the historical period. Reconciliation of cash flow to P&L (i.e., the indirect method reconciliation).
The model checklist
Current forecast. A detailed forecast for the current year and at minimum a high-level projection for the following two years. Clearly stated assumptions for every material line item.
Budget vs actual history. At least twelve months of BvA comparison. This demonstrates forecast accuracy and planning discipline. Persistent large variances without explanation are a red flag.
Scenario analysis. Base case, upside, and downside scenarios with clearly articulated assumption changes. This demonstrates management's understanding of risk and opportunity.
Unit economics. Customer acquisition cost, lifetime value, payback period, and gross margin by segment. For SaaS businesses, these are non-negotiable.
The process checklist
Data room organisation. Organise all documents in a structured virtual data room before the process begins. Standard folder structure: financials, tax, legal, commercial, HR, technology.
Reconciliation trails. Every number should be traceable from the data room to the source system. Revenue in the management accounts should tie to the billing system. Headcount costs should tie to the payroll system. Gaps in the audit trail slow the process and raise concerns.
Key person documentation. The financial models should not live exclusively in one person's head. Document the model architecture, key assumptions, and data sources so that the diligence team can follow the logic independently.
Clean-up items. Address known issues before the process starts: related party transactions that need documentation, intercompany balances that need reconciliation, expense reimbursement policies that need formalising. Every issue discovered by the due diligence team is a negotiating point against you.
Timing
Preparing for due diligence takes four to eight weeks of focused effort. Do not wait until the process starts. If a transaction is on the horizon -- even six months away -- begin the preparation now. The FP&A team that enters due diligence with clean data, documented models, and a well-organised data room sets the tone for the entire process.