Due Diligence
What is Due Diligence in business?
Due diligence is the systematic examination of a business ahead of an event like a merger or acquisition, IPO, capital raise, or audit. It is the examination carried out prior to a financial transaction to assess commercial and legal risks, as well as opportunities.
What does the due diligence process involve?
Due diligence is an extensive process that covers numerous aspects of a business from financial statements and accounting records, to key staff members and agreements. The aspects of a organization covered by due diligence usually fall within five broad areas: commercial performance, finances, legal compliance, operations, and environmental impact.
As there are no official guidelines for what should be covered by the due diligence process, it is generally tailored to each specific transaction. Some types of due diligence are more significant in certain industries than in others, and the depth, length, and scope of the investigation usually depends on:
- The nature of the transaction
- The purchasing or investing company’s needs and interests
- The perceived level of risk.
Due Diligence
How the Due Diligence Process Works
The process of due diligence requires the involvement of both the the purchaser or investor and their accountant and attorney. It's normally performed after an intent-to-purchase agreement has been signed, however before a formal purchase agreement with exchange of assets and funds is entered into. The letter of intent is a non-binding document that each party signs to permit the due diligence process to start.
As due diligence starts, it's time to get external advisors involved in the process. You may want to hire a business appraiser to look through all business records to give you an estimate of the business value, an attorney to look at legal matters, and a CPA to review accounting records.
What can we DO for you?
The process of due diligence requires the involvement of both the the purchaser or investor and their accountant and attorney. It's normally performed after an intent-to-purchase agreement has been signed, however before a formal purchase agreement with exchange of assets and funds is entered into. The letter of intent is a non-binding document that each party signs to permit the due diligence process to start.
As due diligence starts, it's time to get external advisors involved in the process. You may want to hire a business appraiser to look through all business records to give you an estimate of the business value, an attorney to look at legal matters, and a CPA to review accounting records.