Buying a company is always challenging, but due diligence can make it considerably more manageable. Due diligence is conducting a thorough investigation of a target company to ensure that the purchase is sound and that you’ll take advantage of all of the company’s assets. Due diligence typically involves reviewing financials, conducting interviews with employees, and more.
It’s important to remember that due diligence is not an investigatory process; it’s a fact-finding one. So, make sure you have all the data you need before making purchase decisions.
What is due diligence?
When acquiring a company, it is essential to ensure that all the necessary due diligence has been done. This includes verifying financials, conducting an audit, and ensuring all contracts are in place and up to date. Additionally, it is essential to check any potential red flags or concerns with the company.
What are the types of due diligence?
Due diligence in business law describes verifying the accuracy of information, as well as its completeness and relevance before making a decision. It includes looking at all available evidence, including:
- financial data
- contracts
- specs
- feasibility studies
- other documents
There are three types of due diligence:
- financial due diligence (FDD)
- legal, due diligence (LDD)
- environmental due diligence (EDD)
FDD looks at financial data such as income statements and balance sheets to assess a company’s solvency. LDD scrutinizes contracts to make sure they are valid and meet the company’s needs. EDD checks for potential environmental problems such as contaminated soil or water supplies.
Due diligence is essential to any acquisition. The due diligence process includes a review of the company’s financials, legal documents, and other information. This information can help ensure that the company being acquired is a good fit for the new owner and will benefit both companies.