The Different Types of Due Diligence
Due diligence is an intense investigative procedure that is carried out prior to making important business decisions, such as mergers, acquisitions, and investments. It is a thorough review of all aspects of the business and its operations to assess the company’s assets and liabilities as well as its overall financial health. It also evaluates legal risks and compliance. Incorrect or insufficient investigation is among the major reasons behind M&A deal failures.
There are several types of due diligence, and each has its own set of requirements. However, the primary goal is to discover potential issues that could undermine the transaction or increase the risk after a transaction. To accomplish this, it’s important to have a variety of resources available to conduct the research. This can include paid online information services, specialist databases and search engines for free.
There are two main types of due diligence, soft and hard. Hard due diligence is dependent on numbers and information such as audited financial statements as well as profit and loss statements in balance sheets, budgets, and projections. It also includes taking a deep look at the lease agreements contracts, lease agreements, and details of real estate (deeds and mortgages as well as title insurance and use permits) and the purchase and sale histories. This information should be compared to similar businesses to get an idea of the size of the company and its growth potential.