Financial Due Diligence Checklist for a UAE SME Acquisition
Editorial responsibility: Valusage Business Advisory Practice (Editorial Practice)
Direct answer
Financial due diligence tests whether the financial information used for an acquisition or investment decision is internally consistent, supported by evidence and suitable for the specific transaction. A useful scope examines reported earnings, revenue quality, cash conversion, working capital, debt and debt-like items, tax records, related parties and forecast assumptions. It is not an audit, assurance opinion, legal review, valuation or investment recommendation.
Advisory decision map
From information to a controlled decision
- 01Question
- 02Evidence
- 03Options
- 04Action
Illustrative evidence trend
Decision supportDecision path
Identify the applicable facts before taking action
01
Define the decision
Record whether management is evaluating an acquisition, minority investment, merger, funding or another transaction, and which decisions the review must support.
02
Set the perimeter
Identify the legal entities, business lines, periods, locations, related parties and proposed transaction terms included in the review.
03
Prioritise risks
Rank earnings quality, cash conversion, working capital, liabilities, tax records and forecast assumptions by their relevance to the transaction.
04
Test evidence
Reconcile management information to ledgers, bank records, contracts, tax files and other available support; record unresolved differences rather than forcing a conclusion.
05
Route specialists
Send legal, tax-opinion, technology, operational, environmental, valuation and regulated investment questions to appropriately qualified providers.
A checklist is useful only after the buyer defines the decision, transaction perimeter and risks. The same request list should not be applied mechanically to every UAE SME: the scope changes with the business model, entity structure, data quality, deal terms and the evidence already available.
Start with quality of earnings, not a headline multiple
Quality of earnings asks whether reported profit reflects the recurring activity being considered. Reconcile the profit and loss account to the trial balance, inspect material adjustments and separate recurring trading items from one-off, owner-specific, non-operating or poorly supported entries.
Normalized EBITDA is not a statutory measure and should not be treated as an automatic valuation answer. Each proposed adjustment needs a stated basis, evidence, period, counterparty and explanation of why a buyer could reasonably expect the item to recur or not recur after the transaction.
Test revenue from source to cash
Review how revenue is recognised, billed and collected. Compare invoices or system records to the ledger, bank receipts, credit notes, deferred or accrued balances and the terms of material contracts. Customer concentration, unusual period-end entries and post-period reversals may require further work.
This is an evidence test, not an audit opinion. Sampling depth, periods and source systems must be stated in the scope and limitations so management understands what was and was not examined.
Set a working-capital basis that matches the deal
Receivables, payables, inventory, accruals and other operating balances should be analysed for seasonality, ageing, disputed items, provisioning and cut-off. A single closing balance may not represent the operating level required by the business.
The transaction documents and legal advisers determine the contractual working-capital mechanism. Financial review can provide historical analysis and identify evidence questions; it does not draft or interpret the sale agreement.
Identify debt, debt-like items and cash restrictions
Build a schedule of bank borrowing, shareholder balances, leases, guarantees, overdue statutory amounts, unpaid capital expenditure, transaction costs and other obligations that may affect the buyer's decision. Whether an item is contractually treated as debt-like is a deal-specific legal and commercial question.
Reconcile cash to bank evidence and distinguish unrestricted operating cash from deposits, pledged balances, client money or other restricted amounts. Record unresolved confirmations explicitly.
Review the tax file without turning diligence into a tax opinion
Map registrations, returns, payments, assessments, authority correspondence, material elections and related-party information for the periods in scope. Reconcile material tax balances to the accounting records and identify gaps that need a separate fact-specific tax review.
The Corporate Tax advisory hub and VAT compliance service explain the separate compliance scopes. The current FTA Corporate Tax and transfer-pricing guides should be checked whenever a specific obligation or treatment is assessed.
Challenge forecasts through assumptions, not optimism
Trace forecast revenue, margin, payroll, capital expenditure, working capital and funding to named drivers. Compare those drivers with historical performance, current capacity, signed commitments and the operating plan. Build downside cases around the assumptions most capable of changing the decision.
A forecast is management's forward-looking case, not a guaranteed result. The review should show who owns each assumption, what evidence supports it and how the conclusion changes when the assumption changes.
Report red flags with context and an action route
A useful report distinguishes confirmed findings, management explanations, open evidence requests and matters referred to another specialist. It should connect each issue to the transaction question rather than produce a long list without materiality or ownership.
Typical outputs are an evidence request, reconciliation schedules, an earnings and cash analysis, working-capital and debt schedules, a forecast challenge, an open-items register and a decision-focused findings report. Exact deliverables and timing depend on access, scope and data quality.
Evidence checklist
Prepare the evidence before the review begins
The exact request follows the decision, scope and facts. This list is a preparation aid, not assurance that the file is complete or that an authority or commercial outcome will be accepted.
- Signed financial statements or management accounts for the periods in scope, with the underlying trial balances.
- Monthly revenue and gross-margin analysis by material product, service, customer or channel.
- Bank statements, cash reconciliations and a bridge from reported profit to operating cash flow.
- Trade receivables, payables, inventory and other working-capital schedules with ageing and exceptions.
- Borrowing, lease, guarantee, shareholder-balance and other potential debt-like schedules.
- Corporate Tax, VAT and other relevant registration, filing, payment and correspondence records.
- Related-party register, material agreements and intercompany balances or transactions.
- Budget, forecast and financial-model files with named assumptions, owners and supporting evidence.
Professional boundary
This article is general information. It is not a filing opinion, legal advice, audit conclusion, investment recommendation or guarantee of authority acceptance or commercial outcome.
What does financial due diligence cover?+
The scope may cover quality of earnings, revenue, cash conversion, working capital, debt and debt-like items, tax records, related parties and forecast assumptions. It should be tailored to the transaction, entities, periods, data quality and decision risks.
Is financial due diligence an audit?+
No. Financial due diligence is a decision-focused review performed to an agreed scope. It does not provide statutory audit or assurance, and its procedures and limitations should be stated clearly.
How is normalized EBITDA assessed?+
Start with reported earnings reconciled to the ledger, then assess each proposed adjustment using its evidence, period, counterparty, recurrence and relevance after the transaction. Normalized EBITDA is not a statutory measure or an automatic valuation conclusion.
What is a debt-like item?+
It is a potential obligation that the parties may consider alongside financial debt when assessing the transaction. The classification depends on the facts and transaction documents; financial analysis can identify and quantify candidates, while legal advisers address contractual treatment.
What information should a seller provide?+
The request normally includes financial statements or management accounts, ledgers, bank and working-capital records, borrowing and lease schedules, tax files, related-party information, material contracts and forecasts with their assumptions. The final list follows the agreed scope.
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