Due diligence is a process in which you carefully review information prior to making any major commitments or purchases. It helps you weigh the benefits against the risks and make a decision that’s financially viable and strategically sound.
While the specifics of due diligence are different based on the type of transaction, there’s a few critical steps for each:
Commercial Due Diligence
This examines business operations such as customer relationships sales strategies, customer relations, and growth prospects. The goal is to know the market position of the target https://realtechnolive.com company and financial strength, which allows for an accurate valuation and guaranteeing that the transaction will benefit all parties.
Tax Due Diligence
This examines the tax profile of the company that is being targeted that focuses on income and other taxes like use and sales, employment/payroll, property, and transfer taxes(opens in a new tab). It also considers the tax implications on the purchase, such as how to structure the purchase and how to minimize the potential liabilities.
Representations and Warranties
Prior to an IPO, attorneys, underwriters and the company themselves undertake due diligence to ensure that the statements in its filings with the SEC are true. As part of this process, the company being targeted is questioned by key employees and C-suite executives to discuss everything from product development to intellectual property to revenue projections, with an eye towards identifying possible mistakes that could undermine the deal. This isn’t the same as performing due-diligence on prospective customers, but it is a crucial step in ensuring that all documents and data are current and accurate before the DDQ.