The Different Types of Due Diligence

Due diligence is an essential practice that safeguards you and your company from costly mistakes and risk. Due diligence can be broken down into a variety of activities, such as risk assessment, background checks as well as intellectual property and financial records review, compliance checks, to ensure that the entity you are targeting is in compliance with laws and regulations and site visits/inspections, to validate the accuracy of the information.

It is important to establish an investigative team that has a leader or project manager to oversee the entire process. You can utilize your own resources, but outsourcing to industry- or niche-specific specialists will typically guarantee a more independent and objective investigation.

While the kind of due diligence you conduct will depend on the conditions, the main areas to consider include:

The purpose of your investigation will determine how thorough you go with your investigation. If you’re looking at an opportunity to establish a business or partnership relationship, you must define your goals for the relationship to ensure that your due diligence is focused on ensuring that you benefit.

Financial due diligence is a crucial component of many investigations, and includes checks on dataroomapps.com profit margins, balance sheets and analysis of customer accounts as well as fixed and variable cost comparisons, and internal control procedures. Legal due diligence examines the entirety of a business’s legal standing, with a specific focus on pending or past litigation and non-compete clauses. Intellectual property due diligence is the process of examining the trademarks, patents and copyrights in order to find any infringements. Finally, tax due diligence focuses on a company’s tax situation and strategies to assess whether there are any unrecognized liabilities.