Due diligence is the process of investigation and analysis that a company or individual conducts before entering into any transaction, such as investing in an enterprise. Due diligence is required by law for companies that want to purchase other businesses or assets. It is also required by brokers to make sure their customers are fully aware prior to approving an agreement.
Investors will usually perform due diligence to analyze possible investments. This could include mergers, corporate acquisitions or divestitures. Due diligence can reveal hidden liabilities, for instance legal disputes or outstanding debts that could be revealed only after the fact, which could influence the decision to make the deal.
Due diligence can be classified into three types: commercial, financial, and tax due diligence. Commercial due diligence concentrates on a https://savvysocialimpressions.com/blackberry-watchdox-data-room-review/ company’s supply chain as well as its market analysis and its growth prospects. A financial due diligence study examines a company’s financial records to ensure that there are no accounting irregularities, and the company is on sound financial footing. Tax due diligence analyzes the company’s tax exposure and determines if there are any outstanding tax.
Often due diligence is limited to a stipulated timeframe called the due diligence period in which buyers are able to assess the purchase and ask questions. Depending on the deal type the buyer might require professional assistance in conducting this investigation. A due diligence on environmental concerns could include a list of permits for environmental protection and licenses held by a business, while a due diligence on financial issues may require an audit conducted by certified public accounting firms.