An audited balance sheet tells you what a company reported at year-end. It doesn't tell you whether that year's profit was driven by the core business or a one-off gain, whether working capital is genuinely sustainable at current levels, or whether related party dealings quietly moved value in or out of the numbers you're relying on. At N D Savla & Associates, our Financial Due Diligence service exists to answer exactly these questions, for buyers, sellers, and investors across Mumbai, Pune, and beyond.
Our approach is straightforward: test the numbers independently rather than accept management's characterisation of them. We reconcile reported figures against underlying ledgers, bank statements, and contracts, and we flag anything that would change how a rational buyer, seller, or investor should value the business or structure the deal. For due diligence specific to an exit transaction, see our Due Diligence for Exit Support page.
What Does Financial Due Diligence Cover?
- Quality of earnings analysis — stripping out one-off, non-recurring, and non-operating items to arrive at sustainable, normalised earnings
- Working capital analysis — establishing a fair, normalised working capital target for purchase price adjustment purposes
- Net debt and debt-like items — tracing every interest-bearing and contingent obligation that affects enterprise value
- Related party transaction review — assessing whether dealings with promoter entities or group companies reflect arm's length terms
- Revenue quality and customer concentration — testing whether reported growth is sustainable or dependent on a small number of accounts
- Tax and contingent liability exposure — identifying risks that could crystallise after the deal closes
Who Commissions Financial Due Diligence?
Strategic Acquirers
Need independent verification of target financials before finalising valuation and deal structure.
PE and VC Investors
Need confidence that reported metrics — revenue growth, margins, customer retention — will hold up under independent scrutiny.
Business Owners Preparing to Sell
Can identify and fix issues before a buyer's team finds them, often preserving both deal pace and price.
Family Businesses Bringing in Outside Investors
Often carry informal related party arrangements that need to be surfaced and normalised before diligence can proceed.
Historical Context: The Growth of Due Diligence in India
Before 1991, India's heavily regulated industrial licensing regime constrained the scale and frequency of corporate transactions, and formal financial due diligence as a distinct professional discipline was correspondingly uncommon. The 1991 liberalisation reforms triggered a substantial rise in M&A activity, joint ventures, and foreign investment, creating the first sustained demand for independent transaction support.
Through the 2000s, the maturing of private equity as an asset class introduced far more standardised quality of earnings and working capital analysis frameworks. More recently, the growth of startup and growth-stage investing has extended diligence practices to smaller and earlier-stage transactions, while several instances of post-acquisition financial irregularities have reinforced why rigorous, independent diligence remains essential.
Step-by-Step Financial Due Diligence Process
- Scoping and Information Request — Defining the diligence scope based on transaction size and risk profile, and issuing a detailed information request list.
- Financial Statement Analysis — Reviewing historical financials for trends, unusual items, and consistency of accounting policy application.
- Quality of Earnings Assessment — Identifying adjustments needed to reach a normalised, sustainable earnings figure.
- Working Capital Analysis — Assessing historical trends and seasonality to establish a fair working capital target.
- Net Debt and Debt-Like Item Identification — Tracing all interest-bearing obligations, lease liabilities, and contingent items.
- Related Party and Contingent Liability Review — Assessing related party terms for arm's length pricing and flagging exposures.
- Management Discussion Sessions — Clarifying preliminary findings directly with target management.
- Report Delivery — Presenting findings with clear implications for valuation, purchase price adjustment mechanics, and recommended contractual protections.
Financial Due Diligence Across Sectors
Manufacturing and Industrial Targets
Particular attention to inventory valuation methodology, fixed asset condition, and environmental or regulatory contingent liabilities.
Technology and SaaS Companies
Focuses heavily on revenue recognition policy, deferred revenue treatment, and customer churn.
NBFC and Financial Services Targets
Requires detailed asset quality and provisioning analysis, layered on top of standard quality of earnings work.
Retail and Consumer Businesses
Often needs store or outlet-level profitability analysis to determine whether reported growth is genuine.
Why Choose ND Savla & Associates for Financial Due Diligence?
- Independent, evidence-based analysis — findings are reconciled against source documents, never accepted at face value from management representations.
- Coordinated with our Business Valuation practice, so diligence findings translate directly into valuation impact.
- Experience across both buy-side and sell-side engagements, with a clear sense of what each party actually needs.
- Practical, transaction-focused reporting with clear implications for price, structure, and contractual protection.
- Continuity into Transaction Advisory for Exit and Transaction Agreements support once diligence findings need to be reflected in deal documentation.
Note: Sellers who commission their own due diligence ahead of a sale process often preserve more deal value — resolving issues proactively avoids the price chip or renegotiation that typically follows when a buyer's diligence team finds them first.
Important: Related party transactions not conducted at arm's length can carry both valuation and tax implications under the
Income Tax Act, 1961 — these should always be scrutinised carefully during diligence rather than accepted at face value.
Frequently Asked Questions
How long does financial due diligence typically take?
For a mid-sized transaction, diligence typically takes 3 to 6 weeks, depending on data availability and the number of related entities or subsidiaries involved.
What is quality of earnings analysis?
The process of identifying one-off, non-recurring, or non-operating items in reported profit to arrive at a normalised earnings figure that better reflects sustainable business performance going forward.
What is the difference between buy-side and sell-side due diligence?
Buy-side diligence is commissioned by the acquirer to verify target financials before finalising a deal; sell-side diligence is commissioned by the seller to identify and resolve issues proactively before a buyer's own team begins its review.
Does financial due diligence cover legal and tax matters too?
It primarily covers financial statement quality, working capital, and debt, though it typically flags tax and legal contingent liabilities that need deeper review by dedicated tax and legal diligence specialists.
Is due diligence worth it for smaller transactions?
Scaled-down diligence is increasingly common even for smaller deals, since undetected financial issues can be proportionally just as damaging to a smaller acquirer or investor as to a large strategic buyer.