When purchasing a new house or vehicle, making an investment, or contemplating hiring a third-party service, we conduct due diligence by looking into options as well as comparing benefits and costs, and assessing risks. In business, it can mean a variety of things that include researching a company prior an investment, reviewing the contract’s terms and conditions, or looking into the past of a potential client or vendor. Thorough due diligence can help reduce a variety of potential issues that may otherwise cause costly delays or even failure to conclude the deal.
Due diligence can come in many forms and are different depending on the transaction and the jurisdiction. Here are some of the most popular:
Financial due diligence: This involves looking over profits and losses statements in addition to balance sheets and federal tax returns for income, as well as scrutinizing the most important ratios and trends. It may also include analyzing the company’s debt and equity structure, as well as determining whether the company is in compliance with regulations.
IP due diligence includes assessing the value of copyrights, trademarks and patents, as well as how they are secured. It could also include assessing the company’s process for research and development and determining its competitive landscape.
Legal due diligence includes reviewing employee records, contracts and business practices. It can also include assessing the company’s compliance to laws, regulations and anti-bribery guidelines. Due diligence is a time-consuming procedure that requires resources and can be difficult to complete, however it is vital for any successful transaction. Utilizing project management tools such as Trello or Asana that site can help streamline the process, while sources like Westlaw or LexisNexis provide comprehensive access to the law, case law, and other research, facilitating thorough legal reviews.