Whether you’re purchasing a new property or starting a business due diligence is the practice of carefully reviewing the facts prior to making a major purchase or commitment. It helps you weigh the benefits against the dangers and make a choice that’s financially feasible and strategically sound.
While the specifics of due diligence can differ depending on type of transaction, there are certain steps that are essential for each type of transaction:
Commercial Due Diligence
This includes business operations such as customer relations and sales strategies, as well as growth prospects. The goal is to understand the market position of the target company and financial strength, allowing an accurate appraisal and ensuring that the transaction will be beneficial to all parties.
Tax Due Diligence
This section examines the tax profile of the target company, focusing on non-income taxes, such as sales and usage, payroll, property and transfer taxes. It also looks at the impact of tax issues on the acquisition, and how to structure it and how to limit any potential liabilities.
Representations and Warranties
Prior to a company’s IPO is announced, lawyers, underwriters and the company themselves perform due diligence to confirm the accuracy of the information that it has filed with the SEC. To spot possible pitfalls, the top employees of the target company and its C-suite interview the company to discuss everything from intellectual property to revenue forecasts. This is not the same as doing due diligence on customers, but it is an important step to ensure that all documents and information are up-to-date https://realtechnolive.com/what-is-dlc and complete prior to the DDQ is issued.