Types of Due Diligence
Due diligence refers to the company’s or individual’s examination and analysis of data prior to making a purchase, such as investing in a business or purchasing a piece of property. Due diligence is usually required by law for companies seeking to buy other businesses or assets and also by brokers who want to ensure that a customer is fully informed about the specifics of a deal before committing to it.
Investors typically conduct due diligence in order to assess possible investments. This could be in the form of mergers, corporate acquisitions or divestitures. The process could reveal hidden liabilities like outstanding debts and legal disputes that this post on the savvysocialimpressions.com website are only revealed after the fact. This could influence the decision of whether to close a transaction.
Due diligence can be classified into three categories: financial, commercial financial, and tax due diligence. Commercial due diligence is focused on the supply chain of a business, market analysis and growth prospects and a financial due diligence study examines the company’s financial records to make sure there aren’t any accounting irregularities and is on a solid financial footing. Tax due diligence analyses the tax exposure of a firm and also identifies any tax owed.
Due diligence can be restricted to a specific time period, also known as due diligence time, in which a buyer could evaluate a purchase and ask questions. Based on the type of deal, a buyer might require expert assistance to conduct this investigation. Due diligence on environmental issues could include a list of permits for environmental protection and licenses held by a company, while due diligence on financial matters could require an audit by certified public accounting firms.
