Due diligence is the process by which you take the time to review all information before making any major commitments or purchases. It helps you weigh the benefits versus the risks and makes a decision that’s financially feasible and strategically sound.

While the details of due diligence are different based on transaction type, there are certain steps that are essential for each:

Commercial Due Diligence

This is a look at business operations such as customer relations sales strategies, customer relations, and growth prospects. It is important to know the financial strength of the company you are considering and market position to accurately value the deal and ensure it will benefit all parties.

Tax Due Diligence

This looks at the tax profile of the company that is being targeted, focusing on income and taxes that are not income-based, such as use and sales, employment/payroll, property, and transfer taxes(opens in new tab). It also analyzes the impact of any tax issues on the acquisition, and how https://realtechnolive.com/best-pdf-editors-202 to structure it and how to limit the potential liability.

Representations and Warranties

Before a company’s IPO is announced, attorneys as well as underwriters and the company themselves perform due diligence in order to verify the accuracy of the information it submitted to the SEC. To identify any potential issues, key employees of the company and its C-suite members interview the company to discuss everything from intellectual property to revenue forecasts. This is not the exact equivalent of conducting due diligence on customers, but is a crucial part of ensuring that all documents and information are up-to-date and complete before the DDQ.