When you’re looking to purchase a brand new house or a business due diligence is the process of thoroughly reviewing the information prior to making a major purchase or commitment. It helps you weigh the benefits against risks, and makes a financially viable and strategic decision.
While the details of due diligence are different based on transaction type, there are a few critical steps that are applicable to each:
Commercial Due Diligence
This covers the business operations, including customer relations strategies for sales, growth prospects. The goal is to comprehend the target company’s market position and financial strength, allowing for a precise valuation and ensuring that the deal is beneficial to all parties.
Tax Due Diligence
This analyzes the tax profile of the company that is being targeted, focusing on income and taxes that are not income-based, such as use and sales, employment/payroll property, transfer taxes(opens in new tab). It also analyzes the impact of any tax issues that might arise from the acquisition, such as how to structure it and how to mitigate any potential liabilities.
Representations and Warranties
Prior to a company’s IPO is announced, lawyers, underwriters and the company themselves carry out due diligence to verify the accuracy of the information it has submitted to the SEC. In this regard, the target company is interviewed by key employees and its C-suite to discuss everything from product development to intellectual property to revenue projections, with an eye on identifying potential problems that could hinder the deal. This is https://realtechnolive.com not the same as performing due diligence on customers, but it’s an important step to ensure that all information and documents are correct and current prior to the DDQ is issued.