No matter if you’re buying a brand-new home or a company, due diligence is the practice of carefully reviewing the facts prior to making a major purchase or commitment. It helps you weigh benefits against the risks and make an economically sound and strategic decision.
Due diligence is different depending on the nature of the transaction, however there are a few essential steps for each transaction:
Commercial Due Diligence
This is a look at business operations like customer relationships strategies for sales, growth prospects. The aim is to determine the market position of the target firm and financial strength, allowing an accurate appraisal and ensuring that the deal will be beneficial to all parties.
Tax Due Diligence
This section examines the Going Here tax profile of the targeted company, focusing on taxes that are not income-based, like usage and sales payroll, property and transfer taxes. It also considers the tax implications on the purchase, as well as how it should be structured and how to minimize potential liability.
Representations and Warranties
Before an IPO is disclosed, lawyers as well as underwriters and the company themselves do their due diligence in order to verify the accuracy of the information it submitted to the SEC. To spot any potential issues, key employees of the company and its C-suite meet with the company to discuss everything from intellectual property to revenue forecasts. This is not the same as conducting due diligence on customers, but it is essential to make sure that all information and documents are current and accurate prior to when the DDQ is issued.