How to prepare financial data for DD

Providing the financial data needed for a DD process is usually a piece-of-cake, and most of the information can be obtained from your accounting firm. However, there are a few things you should prepare for in advance.

In a typical “light” process you’ll need financial statements from the past few years, including audit reports and notes, as well as detailed balance sheet breakdowns. You should describe your invoicing and revenue recognition policies and any changes to them, and list any one-off income. For the balance sheet, this typically includes ownership in other companies, breakdowns of accounts receivable, accounts payable, advances received, and explanations of doubtful receivables. These are all tasks your accounting firm can handle. 

Additionally, the buyer may request management reports as separate monthly statements. If you update reports by making retrospective corrections (which I recommend), make sure to adjust the reports for previous months as well. Otherwise, the figures won’t match the accounting P/L reports, which can lead to unnecessary explanations during Due Diligence and raise unwarranted concerns. I’m not sure how common this issue is, but it has happened to me personally.

When it comes to tax matters, you’ll typically need not only tax returns with all supporting attachements, but also (amendment) assessments from recent years and the current year’s advance tax demand notes. In addition, keep all correspondence with the tax authorities close at hand, as well as any tax audit reports and transfer pricing documentations. Make sure all of this data is available.

If your company has subsidiaries and engages in intercompany billing, be sure to prepare throghouly for all things related to transfer pricing. Ensure everything is well documented and that the market conformity of internal transactions has been validated by a third party.

During preparation, ensure internal reports are consistent and process-related documents are properly completed and filed.

For payroll data, you’ll need a few years’ worth of salary data by employe, including details of bonuses and the related accruals. Add to this the accounting principles for payroll-related expenses, vacation accruals, and the current status of työaikapankki (työaikapankin tilannetiedot). Once you include a list of subcontractors and the fees paid to them, the buyer will have a crystal-clear view of the true personnel-related costs of running the business.  

The payroll-related information is also readily available from your accounting firm, and this doesn’t require any notable preparation. However, it’s advisable to ensure that the työaikapankin kirjaukset are up to date. In addition to these, you’ll need documentation related to any R&D capitalizations (tuotekehitysaktivointi). Prepare in particular for a detailed breakdown of the personnel expenses. If your company has a competent auditor, you’ve likely already addressed these matters during the preparation of the financial statements.

As for the financial information, there’s no need for significant advance preparation, as most of the data can be retrieved from the financial management system and a capable accounting firm. When preparing it, your focus should be on ensuring that internal reports are consistend and that all documentation related to internal processes has been properly prepared and archived.

.