Whether you’re purchasing a new property or starting a business, due diligence is the practice of thoroughly reviewing the information prior to making a big purchase or commitment. It helps you evaluate the benefits and risks and make a decision that’s financially viable and strategically sound.
Due diligence is different depending on the nature of the transaction, however there are some essential steps in every case:
Commercial Due Diligence
This examines business operations like customer relations strategies for sales, growth prospects. The aim is to determine the market position of the target company and financial strength, which allows for accurate valuation and ensuring that the transaction will be beneficial to all parties.
Tax Due Diligence
This section examines the tax profile of the targeted company, with a particular focus on non-income taxes, such as usage and sales as well as payroll, property and transfer taxes. It also examines the impact of tax issues that might arise from the acquisition, including how to structure it and how to https://realtechnolive.com/due-diligence-data-room-is-the-top-secure-file-sharing-solution/ minimize the potential liability.
Representations and Warranties
Prior to an IPO, attorneys, underwriters and the company themselves perform due diligence to verify that the representations in its filings with the SEC are accurate. To avoid potential pitfalls, key employees of the company and its C-suite interview the company to discuss everything from intellectual property to revenue forecasts. This isn’t the same as performing due diligence on customers, but it is essential to make sure that all documents and information are current and accurate prior to when the DDQ is issued.