Due diligence is the process by which you carefully review information prior to making any major commitments or purchases. It allows you to weigh the benefits versus the risks and make a decision that’s financially viable and strategically sound.

Due click to read diligence is different based on the nature of the transaction, however there are some essential steps for each transaction:

Commercial Due Diligence

This includes business operations such as customer relations, sales strategies, and growth prospects. It is essential to know the financial strength of the target company and market position to accurately evaluate the deal and ensure that it will benefit everyone involved.

Tax Due Diligence

This examines the tax profile of the company that is being targeted that focuses on income and taxes that are not income-based, such as payroll and employment property, transfer taxes(opens in new tab). It also examines the impact of any tax-related issues that may arise during the acquisition, as well as how to structure it and how to minimize potential liabilities.

Representations and Warranties

Prior to a company’s IPO is announced, lawyers, underwriters and the company themselves carry out due diligence in order to verify the accuracy of the information it has submitted to the SEC. To spot any potential problems, the key employees of the company and its C-suite members interview the company to discuss everything from intellectual property to revenue forecasts. This isn’t the same as conducting due-diligence on clients, but it is a crucial step in ensuring that all documents and information are up-to-date and complete before the DDQ.