Due diligence is the investigation and analysis a business or person conducts prior to entering into any transaction, such as investing in a business. Due diligence is required by law for businesses that wish to purchase assets or businesses. It is also required by brokers to make sure their clients are informed prior to signing any transaction.
Due diligence is the process that investors usually follow when looking at potential investments, that could include a corporate acquisition or merger, or even a divestiture. This process may reveal hidden liabilities like legal disputes and outstanding debts, which would only be revealed after the fact. This could impact the decision of whether to close a deal.
Due diligence can be classified into three types: financial, tax and financial due diligence. Commercial due diligence focuses on a company’s supply chain, market analysis and growth prospects and a financial due diligence investigation examines a company’s financial records to be sure there aren’t any accounting irregularities and that it is on a solid financial footing. Tax due diligence studies the tax exposure of a company and identifies any outstanding tax.
Often due diligence is limited to a specified timeframe, called the due diligence period in which buyers are able to examine the potential purchase and ask questions. Depending on the type of deal the buyer might require professional assistance in conducting this study. For example an environmental due diligence might concentrate on a list of all environmental permits and licenses a company holds, while https://savvysocialimpressions.com/virtual-boardroom-tools-top-features-for-seamless-meetings/ a financial due diligence might include a review conducted by certified public accountants.