What Should a Family Office Include in a Written Diligence Plan?
Short answer. A written diligence plan should define the opportunity and family mandate. It should set decision criteria, workstreams, owners, deadlines, needed documents, and an approval path. Track claims, evidence, risks, conflicts, open questions, and specialist assignments. Set a pause point for unresolved issues before a decision.
A written diligence plan should say what the family office needs to learn before committing capital and who will find out. It defines the review's scope and approval route, and records unresolved matters.
State the Mandate and Decision Rules
Start with the opportunity, proposed structure, and investment thesis. Explain how it fits the family's mandate. Record relevant limits, including liquidity needs, risk tolerance, and concentration policy, along with the family members or committee authorized to approve. Set the approval route before work begins. Specify who may request more work, change terms, pause the process, or decline.
Record the claims that must hold for the investment to work, along with evidence that could disprove them. Include ways capital could be impaired, such as loss, dilution, capital calls, or a delayed exit. Tell the team what evidence would change its view; a list of review topics alone is not enough.
Turn the Scope Into Assigned Work
Divide the review into workstreams suited to the asset. These may cover sponsor and ownership, financial records, commercial case, legal terms, and operations. Include tax and exit assumptions where applicable. For each workstream, name an owner and list the records needed. Set an expected output and due date. Note which tasks belong to internal staff and where an independent accountant, attorney, engineer, or other specialist is needed.
For a multi-investor deal, agree in writing on the lead contact and advisor instructions. Set expense approval rules and explain how findings will be shared. One designated lead should coordinate advisor instructions to avoid conflicting requests. Include engagement terms and cost approvals in the plan.
Track Evidence and Open Questions
Keep a claim and issue log linked to source documents. For each material claim, record who made it, what evidence supports it, whether it has been checked, and what remains uncertain. Assign an owner and next step to every open question. Mark whether each statement comes from a contract, third-party record, sponsor explanation, or assumption.
Set a pause point before approval. Specify which unanswered issues may be accepted with a condition, which call for changed terms, and which must be resolved before a decision. For example, a missing record may be tolerable if it does not affect the thesis. Unclear authority to approve a capital call may need legal review. Name who may accept each type of remaining risk.
Prepare a Decision Record
Choose a short reporting format that puts material risks and unresolved items before the decision group. For each finding, state the evidence and possible effect. Name an owner and propose a response. At approval, record the decision and reasons. Note any conditions and items for post-close monitoring. This gives the team a useful record if assumptions change or responsibility passes to another team member.
Keep the plan practical and update it as evidence arrives. A plan no one uses will not improve a decision. For more screening questions to include in your workstreams, see the top 25 due diligence questions.
Checklist
- Describe the opportunity and how it fits the mandate. State the thesis and approval authority.
- List assumptions that must hold and evidence that could disprove them.
- Assign an owner to each workstream. Note records requested, expected output, and due date.
- Record advisor scope and instructions. Set expense approval rules.
- Link claims and open issues to evidence. Record next steps.
- Set pause and changed-terms rules. Define what risks may be accepted before the decision.
- Document the decision and any conditions. Assign monitoring responsibilities.
Read next: How should a family office prioritize diligence when time is limited? and How can an investment team keep diligence findings organized and searchable?
What is the approval process before an investment is made?
Sources: Family Office Club investor due diligence framework, The Family Office Book, The Single Family Office. Informational only, not financial, legal or tax advice.