What Is Due Diligence?

Due diligence is a process in which you review the information carefully prior to making any major purchases or commitments. It helps you weigh the advantages against the risks and make a decision that’s financially sustainable and strategically sound.

Due diligence is different based on the type of transaction, but there are some essential steps in each case:

Commercial Due Diligence

This is a look at business operations like customer relationships, sales strategies, and growth prospects. The goal is to know the market position of the target company and financial strength, allowing for a precise valuation and ensuring that the deal will benefit all parties.

Tax Due Diligence

This section examines the tax profile of the acquiring business, focusing on non-income taxes, such as usage and sales as well as payroll, property and transfer taxes. It also examines the tax implications on the purchase, including how it should be structured and how to reduce potential liabilities.

Representations and Warranties

Prior to an IPO, attorneys, underwriters and the company themselves conduct due diligence to ensure that the claims made in its filings with the SEC are true. As part https://realtechnolive.com/best-body-mods-for-skyrim of this process, the target company is interviewed by key employees and its top management to discuss everything from the development of products to intellectual property to revenue projections, with an eye toward finding possible pitfalls that could derail the deal. This isn’t the same as conducting due diligence on clients, but it is a crucial part of ensuring that all documents and records are up-to date and complete before the DDQ.