1. What is Due Diligence in Nepal?
Due diligence is the systematic audit conducted by a buyer and their chartered accountants/lawyers to verify that the seller's representations regarding revenue, customer retention, physical inventory, and legal compliance are accurate.
In Paisoo's transaction pipeline, due diligence occurs during Stage 3 (under mutually executed Non-Disclosure Agreements) and continues into Stage 4 (LOI & Escrow Lock) before final shareholder transfer.
2. Financial & POS Deposit Verification
Never rely solely on self-prepared Excel sheets or un-audited profit and loss statements. In Nepal, buyers should cross-reference three independent financial records:
- Bank Statement Reconciliation: Total gross deposits across all bank accounts must match reported revenue within a 5% margin of error.
- POS / Billing Software Logs: Review raw timestamped sales data to detect any artificial revenue spikes right before listing.
- Supplier Payment Invoices: Inspect vendor invoices (e.g. coffee beans, packaging, inventory suppliers) to verify Cost of Goods Sold (COGS).
3. Legal, Ward & OCR Compliance
Ensure the corporate entity is in full good standing with regulatory authorities:
- Office of the Company Registrar (OCR): Verify annual returns (D-Form schedules), authorized vs paid-up share capital, and director appointments.
- Inland Revenue Department (IRD): Check that VAT returns (Annex 13) and advance corporate income tax (D1/D2/D3 forms) have been lodged properly.
- Local Ward Office: Verify business operation registration (Byabasaya Darta) and local trade tax settlements.
4. The Commercial Lease Agreement
For brick-and-mortar businesses, the lease agreement is often the single most critical asset being acquired. Verify remaining term, annual escalation rates (typically 10% every two years in Nepal), and ensure the landlord executes a formal tripartite lease novation agreement.
5. Employee Retention & Revenue Concentration
If the company depends heavily on key staff (such as a head chef, master roaster, or lead software architect), verify their employment contracts and non-compete clauses. Furthermore, ensure no single client accounts for more than 25% of total revenue to avoid client flight risk post-acquisition.
