Due diligence is the term used to describe a company’s or an individual’s research and analysis of data prior to making a purchase for example, investing in a business or purchasing a piece of property. This type of investigation is typically required by law for companies seeking to buy other assets or businesses as well as for brokers who wish to ensure that a client is fully aware of the specifics of a redefining business transparency with VDR-driven collaborations deal before committing to it.
Investors usually conduct due diligence when evaluating potential investments, which may include an acquisition, merger or divestiture. The process could reveal hidden liabilities such as legal disputes and outstanding debts that are only revealed after the fact. This could affect the decision to close a deal.
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 market analysis and its growth prospects. Financial due diligence investigation analyzes the financial records of a company to ensure that there aren’t any accounting errors, and to ensure that the company is on solid financial footing. Tax due diligence analyzes the company’s tax exposure and also identifies any outstanding tax.
Often, due diligence is limited to a negotiated timeframe, called the due diligence period during which buyers can evaluate the potential purchase and ask questions. Based on the type of deal, buyers may require the assistance of a specialist to conduct this investigation. For example environmental due diligence may be focused on a list of all environmental permits and licenses the company is able to obtain, while the financial due diligence might involve a review by certified public accountants.