Types of Due Diligence

Due diligence refers to the process of a person or a business’s study and analysis of information prior to committing to a transaction for example, investing in a business or buying a piece of property. Due diligence is required by law for businesses that wish to purchase assets or businesses. It is also required by brokers to make sure their customers are fully informed prior to committing to a transaction.

Investors usually conduct due diligence when evaluating potential investments, which may include an acquisition either through merger or divestiture. Due diligence can reveal hidden straightforward pricing models in digital rooms liabilities, like legal disputes or outstanding debts that could be disclosed only after the fact, which could influence the decision to make an acquisition.

Due diligence can be divided into three types: commercial, fiscal, and tax due diligence. Commercial due diligence focuses on the supply chain of a company and market analysis, as well as growth prospects and a financial diligence study examines the company’s financials to make sure there aren’t any accounting irregularities and that it is on a solid financial footing. Tax due diligence analyzes the tax liabilities of a business and uncovers any tax liabilities.

Usually due diligence is restricted to a negotiated timeframe, known as the due diligence period, in which buyers are able to assess the purchase and ask questions. Based on the type of deal, a buyer might need specialist help to conduct this investigation. For example environmental due diligence may consist of a list of all environmental permits and licenses the company is able to obtain, while financial due diligence could involve a review by certified public accountants.