Due diligence is the research and analysis that a company or person conducts prior to entering into any transaction, like investing in an enterprise. Due diligence is usually required by law if a company wants to buy other businesses or assets and also by brokers who want to ensure that their client is fully aware of the details of a transaction prior to signing a contract.
Investors typically perform due diligence when evaluating possible investments. This could be in the form of corporate acquisitions, mergers, or divestitures. The process can reveal hidden liabilities like outstanding debts and legal disputes, which would only be made public after the fact. This could influence the decision to close a transaction.
There are many types of due diligence. They include tax, financial and commercial due diligence. Commercial due diligence is focused on a company’s supply chain and its market analysis and its growth prospects. Financial due diligence study examines a company’s financial records to make sure that there are no accounting irregularities, and the company is on sound financial footing. Tax due diligence studies the tax liabilities of a business and also identifies any tax owed.
Due diligence is usually limited to a set period of time called a due diligence period, in which a buyer may evaluate a potential purchase and ask questions. Depending on the nature of deal, a buyer could require expert assistance to conduct this investigation. For instance an environmental due diligence might be focused on a list of all environmental permits and licenses the company is able to obtain, while financial due diligence may require a review by certified savvysocialimpressions.com public accountants.