What questions should you ask during due diligence interviews?

You’ve found a promising business to acquire or a partner to invest with. The numbers look good on paper, the website is polished, and the initial meetings have been positive. But what lies beneath the surface? To truly understand the health and viability of a business, you must go beyond the balance sheet. This is where asking the right due diligence interview questions becomes the most critical step in your entire investment journey. The quality of your questions directly determines the quality of your insights and can be the single factor that saves you from a costly mistake.

A due diligence interview is a structured, in-depth conversation that allows you to verify facts, uncover hidden risks, and validate the information you’ve been given. This guide provides a comprehensive checklist of questions designed specifically for the Indian business landscape, covering the crucial financial, legal, and operational aspects you need to investigate before making a final decision.

Understanding the Due Diligence Interview Process in India

Before diving into the specific questions, it’s essential to understand the framework of these interviews. The due diligence interview process in India is not an interrogation; it is a fact-finding mission designed to provide clarity and build a complete picture of the target company. It complements the document review process by adding qualitative context and human insight that financial statements alone cannot offer.

What is a Due Diligence Interview?

A due diligence interview is a formal meeting with the key personnel of a company you are considering investing in or acquiring. It’s a key part of answering the question of what is due diligence and why is it important in business transactions?. The primary purpose is to gain qualitative insights and verify the quantitative data you have already reviewed in the virtual data room (VDR). Think of it as the story behind the numbers. It’s your chance to understand the management’s vision, assess the company culture, clarify accounting policies, and ask direct questions about potential liabilities or operational challenges.

Key Participants in the Process

A successful interview involves having the right people in the room. Typically, the attendees include:

• The Buyer/Investor Team: This includes you and any advisors you’ve engaged.
• The Seller/Target Company’s Management: This should include the founders, CEO, CFO (or Head of Finance), and other key department heads (e.g., Operations, Sales, HR).
• Financial Advisors: Professionals like the team at TaxRobo who can ask probing financial and tax compliance questions.
• Legal Counsel: Lawyers who focus on corporate structure, contracts, litigation, and regulatory compliance.

The Stages of the Due Diligence Interview Process in India

While the process can vary, it generally follows a structured flow to ensure efficiency and thoroughness:

1. Initial Document Review: Before any interviews, your team meticulously reviews all provided documents, including financial statements, tax filings, legal contracts, and corporate records.
2. Preparing the Questionnaire: Based on the document review, you create a tailored list of questions to seek clarification, probe inconsistencies, and explore areas of potential risk.
3. Scheduling and Conducting Interviews: Interviews are scheduled with relevant personnel. Often, separate sessions are held for finance, legal, and operations to allow for focused discussions.
4. Follow-up and Verification: After the interviews, your team consolidates notes, identifies any new information, and may request additional documentation or schedule brief follow-up calls to verify the answers provided.

Preparing for Success: How to Approach Due Diligence Interviews

Preparation is the cornerstone of a successful due diligence interview. Walking into a meeting unprepared not only wastes everyone’s time but also significantly increases your risk of missing critical red flags. Knowing in advance what red flags should you look for during due diligence investigations? can help you structure your questions effectively. Following a structured approach will ensure you extract the maximum value from every conversation.

Define Your Goals and Scope

Before you draft a single question, be crystal clear about what you need to achieve. Are your primary concerns about verifying the reported revenue? Are you trying to understand the risk of pending litigation? Or is your focus on assessing the stability of the management team and core operational processes? Defining your scope helps you prioritize your questions and stay focused on the issues that matter most to your investment thesis.

Review All Provided Documents First

One of the biggest mistakes investors make is asking questions that are already answered in the provided documents. Thoroughly review all financial statements, GST returns, ROC filings, key employee contracts, and major customer agreements before the interview. This preliminary work, often part of a detailed financial audit or legal check, allows you to ask intelligent, specific follow-up questions. Instead of asking “Do you file GST returns?”, you can ask, “I noticed a discrepancy in the GSTR-1 and GSTR-3B filings for Q2 of last year; can you explain what caused this?” This demonstrates your diligence and pushes for more meaningful answers. For a comprehensive check, consider professional support like TaxRobo’s Audit Service.

Prepare a Checklist of Key Questions for Due Diligence Interviews

Never rely on memory. A well-prepared checklist is your most powerful tool. Group your questions for due diligence interviews by category—such as Finance, Legal, Operations, and HR—to ensure a logical flow and comprehensive coverage. This structured approach prevents you from forgetting critical queries and helps you manage the conversation effectively, ensuring all your key concerns are addressed systematically.

The Ultimate Checklist: Core Due diligence interview questions

This checklist is designed to be a starting point. You should adapt and expand upon it based on the specific industry, business model, and the findings from your initial document review.

Financial & Tax Compliance Questions

This section is about verifying the financial health and ensuring the company is compliant with India’s complex tax regulations. Learning how do you conduct financial due diligence for a merger or acquisition? is crucial for this part of the process.

• Revenue & Profitability:
  • “Can you walk me through your revenue recognition policy in detail? At what point is revenue officially booked?”
  • “What are the top three drivers of your gross and net profit margins? How have these evolved over the last three years?”
  • “Are there any one-time or non-recurring revenues or expenses included in the last three financial years’ P&L statements?”
  • “What is your customer concentration? What percentage of revenue comes from your top 5 customers?”
• Assets & Liabilities:
  • “Please provide a detailed breakdown of all outstanding debts, bank loans, and director loans, including interest rates, repayment terms, and any associated covenants.”
  • “Are there any off-balance-sheet liabilities, contingent liabilities, or corporate guarantees that we should be aware of?”
  • “How do you value your inventory and are there any provisions for obsolete or slow-moving stock?”
• GST & Indirect Tax:
  • “Is the company fully up-to-date with all GST filings, including GSTR-1, GSTR-3B, and the annual GSTR-9? Can we get temporary view access to the GST portal to verify the filing history?”
  • “Have you ever received any show-cause notices or assessments from the GST department? If so, what was the nature of the issue and what was the final outcome?”
  • “What is your process for input tax credit (ITC) reconciliation between your books and GSTR-2A/2B?”
  • For official information, you can always refer to the GST Portal.
• Income Tax & TDS:
  • “Are all corporate income tax returns filed on time? Are there any pending assessments, disputes, or outstanding tax demands?”
  • “Can you describe your process for ensuring TDS compliance on all applicable payments like salaries, rent, commissions, and professional fees? Are all TDS returns filed correctly and on time?”
  • “Have there been any adjustments or disallowances made by the Income Tax Department in past assessments?”
  • For government guidelines, see the Income Tax India Website.

Legal & Regulatory Questions

This area focuses on corporate governance, compliance with Indian laws, and potential legal risks.

• Corporate Structure & Filings:
  • “Is the company fully compliant with all Ministry of Corporate Affairs (MCA) filings, such as annual returns and financial statements? Is the secretarial record (e.g., minute books) complete and up-to-date?”
  • “Can you explain the current shareholding pattern? Are there any shareholder agreements, options, or convertible instruments in place? Have there been any shareholder disputes?”
• Licenses & Permits:
  • “What are the essential licenses, permits, and registrations required to operate your business legally in India (e.g., FSSAI, Shop & Establishment Act, Pollution Control Board NOC)? Are all of these valid and current?”
  • “Have any key licenses ever been suspended or revoked?”
• Contracts & Litigation:
  • “Are there any ongoing, pending, or threatened lawsuits, regulatory investigations, or employee disputes against the company?”
  • “Who are your top 5 customers and top 5 suppliers by contract value? What are the key terms, including duration, termination clauses, and liability limits, in your contracts with them?”
• Intellectual Property (IP):
  • “What are the key trademarks, copyrights, or patents owned by the company? Are they formally registered in India, and who owns them—the company or the founders individually?”
  • “Is the company’s IP at risk of infringement from competitors? Has the company ever been accused of infringing on another party’s IP?”
  • Protecting your IP is crucial. Learn more about TaxRobo’s Intellectual Property Service.

Operations & Management Questions

These questions help you understand how the business runs day-to-day and the strength of its leadership.

• Team & Employees:
  • “Who are the key employees in the management team, beyond the founders? What are their specific roles and responsibilities?”
  • “Are there formal, written employment contracts for all employees? Are you fully compliant with Indian labour laws, including Provident Fund (PF) and Employee State Insurance (ESI) contributions?”
  • “What is the employee turnover rate, particularly for key positions?”
• Business Processes:
  • “Can you describe your core operational workflow, from acquiring a customer to delivering the final product or service?”
  • “What are the biggest operational bottlenecks or challenges you currently face? What steps are being taken to address them?”
  • “Which systems and software (e.g., ERP, CRM) are critical to your operations? Are these owned, licensed, or custom-built?”

Best Practices for Conducting Due Diligence Interviews in India

Knowing the questions is only half the battle. How you conduct the interview is equally important for uncovering the truth. Adhering to the best practices for due diligence interviews can significantly enhance the quality of information you gather.

Ask Open-Ended Questions

Avoid questions that can be answered with a simple “yes” or “no.” Instead of asking, “Are your GST filings up to date?” (which prompts a “yes”), ask, “Can you walk me through your monthly GST compliance process, from data collection to final filing?” This open-ended version forces a detailed explanation, revealing the process, the people involved, and their level of expertise.

Listen More, Talk Less

Your primary role is to listen and observe. Give the person you’re interviewing ample space to talk. Pay close attention not just to what they say, but how they say it. Hesitation, evasiveness, or overly complex answers to simple questions can be red flags. Sometimes, the most important information is found in what isn’t said.

Probe and Ask Follow-up Questions

Don’t accept vague answers at face value. If the management team says, “We had a small tax issue last year, but it’s resolved,” you must probe further. Follow up with specific questions like:

• “Can you elaborate on the exact nature of that tax issue?”
• “Which tax authority was involved?”
• “What was the financial impact?”
• “Can you provide the documentation related to its resolution?”

Document Everything

Take detailed notes during the interview. Immediately after the session, while the conversation is still fresh in your mind, summarize the key findings, action items, and any areas that require further investigation. This written record is invaluable for your final analysis and report.

Conclusion

A successful business acquisition or investment is built on a foundation of thorough investigation, not just optimism. A well-prepared and professionally conducted due diligence interview is a non-negotiable part of this process. Using this structured list of due diligence interview questions will empower you to move beyond the surface-level numbers, identify potential red flags, and make a truly informed decision that protects your capital and sets your venture up for success.

The due diligence process can be complex and requires a sharp eye for financial and legal detail. Don’t navigate it alone. Contact TaxRobo’s team of financial and legal experts for professional assistance in conducting thorough due diligence in India and ensuring no stone is left unturned.

FAQ Section

1. Who should I interview during due diligence?

You should aim to interview key individuals who have deep knowledge of their respective domains. This typically includes the CEO/Founder (for vision and strategy), CFO/Head of Finance (for financials and compliance), Head of Operations (for business processes), and Head of HR (for team and labour compliance). The specific people will depend on the area of your investigation.

2. What are some major red flags to look for during an interview?

Significant red flags include evasive or inconsistent answers, a clear reluctance to provide specific documents to back up claims, undisclosed liabilities or litigation that you uncover, a high rate of key employee turnover, and a general lack of sophisticated processes for financial reporting and compliance.

3. Is due diligence only for buying a company?

No. While it is most commonly associated with mergers and acquisitions, due diligence is crucial for any significant business decision. This includes taking on a major investment from a VC, forming a strategic joint venture, entering into a long-term partnership, or even hiring a C-level executive.

4. How long does a due diligence interview session typically last?

The duration can vary widely, from a single one-hour session to a full day broken into multiple meetings. The complexity of the business and the scope of your investigation are the main determining factors. It is common to have separate, focused sessions for finance, legal, and operations, each lasting one to two hours.