Financial Due Diligence in Delhi | Buy-Side & Sell-Side FDD, Quality of Earnings

In a Nutshell: Know What You Are Buying Before You Sign

Financial due diligence tests whether a business’s reported numbers hold up — how much of the profit is real and repeatable, what the true debt is, how much working capital it needs, and what exposures sit outside the balance sheet. Startup Advisory runs buy-side FDD for acquirers and lenders, and sell-side FDD for owners preparing a sale.

Quality of earnings: reported EBITDA normalised for one-offs, owner-related costs, related-party pricing and accounting policy choices.
Net debt: borrowings plus debt-like items — statutory dues in arrears, deferred payments, gratuity, customer advances.
Working capital: monthly trend, seasonality and a normalised level to agree a working capital peg.
Exposures: tax, contingent liabilities, litigation, guarantees and related-party balances.
Output: red-flag summary, detailed FDD report and inputs for price, indemnities and conditions precedent in the SPA.
Raising funds instead? See our investor-ready due diligence for startups preparing a round.

Reviewed by CA Neeraj Rohilla, FCA — Chartered Accountant, Startup Advisory, Saket, New Delhi.

The Price Is Set on Earnings. The Diligence Checks Them.

Most deals are priced as a multiple of earnings and adjusted for debt and working capital. Each of those three numbers can move materially once someone looks closely: an EBITDA that included a one-off contract, a balance sheet that left out unpaid statutory dues, a working capital level that was flattered at year end. Financial due diligence finds those movements before the price is fixed, when they still change the deal.

What our FDD covers

Quality of earnings: revenue recognition and cut-off, customer concentration and churn, gross margin by product or segment, normalisation adjustments to EBITDA, and run-rate analysis.
Net debt and debt-like items: bank and related-party borrowings, overdue GST, TDS, PF/ESI and MSME dues, unfunded gratuity and leave liabilities, deferred consideration, customer advances, capex creditors.
Working capital: monthly trade receivables, inventory and payables, ageing, provisioning, and a normalised working capital level for the peg.
Cash flow and capex: conversion of EBITDA to cash, maintenance vs growth capex, and the reliability of the business plan.
Tax: income tax, GST and TDS compliance, open assessments and notices, and the exposure a buyer inherits in a share deal.
Related parties: transactions with promoters and group entities, their pricing and whether they continue after closing.
Contingent liabilities: guarantees, litigation, warranty claims and off-balance-sheet commitments.

Buy-side and sell-side

	Buy-side FDD	Sell-side (vendor) FDD
For	Acquirers, investors, lenders	Promoters preparing a sale or merger
Aim	Find issues that affect price, structure and protections	Surface issues early and present them on your terms
Output	Red-flag report, FDD report, SPA inputs	Vendor DD report and a clean data room
Benefit	Price and indemnities based on evidence	Fewer surprises, faster deal, less price chipping

How it connects to the rest of the deal

FDD findings feed straight into the share purchase agreement — the price mechanism, specific indemnities, conditions precedent and warranties. Where the target is a company, we usually run it alongside secretarial due diligence so the corporate record is tested at the same time, and a Registered Valuer valuation where the Companies Act or FEMA requires one.

We act on one side of a transaction only. We do not take a buy-side mandate on a business for which we are the statutory auditor or for which we have prepared the accounts.

Related Audit & Assurance Services

Secretarial Due Diligence →Companies Act compliance trail — share capital, ROC filings, registers, minutes, charges and FEMA filings — for deals and lenders.

Due Diligence & Investor-Ready Report →Financial, secretarial and tax due diligence for startups preparing a funding round.

Statutory Audit →Annual statutory audit of companies under the Companies Act, 2013 and of LLPs above the audit limits — with CARO 2020 reporting.

Investigation Audit →Forensic and investigation audits into suspected fraud, misappropriation and disputes — evidence-grade, confidential.

See all audit & assurance services

Frequently Asked Questions

Financial due diligence is an independent review of a business’s historical financial information, carried out before a transaction, to test the quality of its earnings, its true debt and working capital needs, and any financial exposures a buyer, investor or lender would take on.

It adjusts reported EBITDA for items that will not recur or do not reflect the business on a standalone basis, such as one-off income or expenses, owner salaries above or below market, related-party pricing and accounting policy changes, to arrive at a normalised, sustainable earnings figure.

Obligations that are not classified as borrowings but will consume cash like debt: overdue statutory dues, unfunded employee benefits, deferred purchase consideration, customer advances for undelivered goods, capex creditors and similar items. Buyers usually deduct them from the price.

Our investor-ready due diligence is designed for startups preparing for a funding round and combines financial, secretarial and tax checks with a data room. Financial due diligence on this page is the deeper, transaction-focused financial review used in acquisitions, mergers, joint ventures and lending.

For a small or mid-sized private company with organised records, typically three to five weeks from data room access to final report, with an early red-flag summary in the first two weeks.

It depends on the size of the target, the number of entities, the period covered and the depth required. We scope it and quote a fixed fee before starting. Call 9311972982.

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