What Is Due Diligence?

Due diligence is a process in which you thoroughly review information prior to making major commitments or purchases. It helps you weigh the benefits against risks, and makes an informed and financially sound decision.

While the specifics of due diligence differ based on the type of transaction, there’s a few critical steps for each transaction:

Commercial Due Diligence

This covers business operations, such as customer relations strategies for sales, growth prospects. It is crucial to know the target company’s financial strength and market position to accurately evaluate the deal and ensure it will benefit everyone involved.

Tax Due Diligence

This section best business software for everyday usage examines the tax profile of the targeted company, with a focus on taxes that are not income-based, like usage and sales as well as payroll, property and transfer taxes. It also examines the impact of tax issues that might arise from the acquisition, including how to structure it and how to minimize potential liabilities.

Representations and Warranties

Before an company’s IPO is announced, attorneys and underwriters, as well as the company themselves perform due diligence in order to confirm the accuracy of the information that it has submitted to the SEC. In order to find possible pitfalls, the top employees of the company and its C-suite members interview the company to discuss everything from intellectual property to revenue forecasts. This is not the same as performing due diligence on customers, but it is an important step to ensure that all documents and information are correct and current prior to the DDQ is issued.