What Is Due Diligence?

Due diligence is the method by which you take the time to review all information prior to making any major commitments or purchases. It allows you to weigh the advantages against risks and help you make an informed and financially sound decision.

Due diligence is different based on the nature of the transaction, but there are some critical steps for each transaction:

Commercial Due Diligence

This covers business operations like customer relationships and sales strategies, as well as growth prospects. The goal is to know the market position of the company being targeted and financial strength, allowing for accurate valuation and ensuring that the transaction will benefit all parties.

Tax Due Diligence

This looks at the tax profile of the target company that focuses on income and non-income taxes such as sales and use, employment/payroll property, transfer taxes(opens in a new tab). It also looks at the impact of tax issues that might arise from the acquisition, including how to structure it, and how to reduce the risk of liability.

Representations and Warranties

Prior to an IPO attorneys, underwriters as well as the company itself undertake due diligence to ensure that https://realtechnolive.com/best-pdf-editors-202 the representations in its filings with the SEC are true. As part of this procedure, the company that is being targeted is interviewed by key employees and the C-suite to discuss everything from the development of products to intellectual property to revenue projections, all with the goal of identifying any potential pitfalls that could derail the deal. This isn’t exactly the same as performing due-diligence on prospective customers, but it is a crucial part of ensuring that all documents and records are current and complete before the DDQ.