Due Diligence is the one of the final steps between buying and selling a business. Doing due diligence is not only to protect both parties but it allows for key information to surface between both parties (buyer and seller) to be known of. When beginning to evaluate a business to buy or invest, there are a number of factors to be aware of, to verify a business, inspect the value and status of a business. This process for a selling or buying decision shall take place after receiving financial, legal and other forms of information (incorporation type, stakeholders, etc.) to enable better analysis to support the decision better.
To elaborate on this process; It includes visits to the business facilities, meeting with employees, contacting the customers & suppliers. Conducting thorough checks of inventory & assets. Vetting of existing contracts, legal documentation. Reconciliation of books, tax returns, financial statements and other records. Verifying Receivables, Payables and other types of Receivables and Payables. Market evaluation of customer patterns, marketing strategies in place, competitors and position of the business in the market. As well as, a business’s reputation and employee-employer relationship, etc.
The above stated process is a sample of the behind-the-scenes when due diligence is taking place. Some business may require an extensive type of due diligence and some may require basic due diligence. The due diligence varies accordingly. However, it is highly recommended to conduct due diligence of a business before proceeding to selling or buying a business. It allows for no surprises to appear after a transaction has occurred. Doing any form of due diligence can really help you understand a business in depth from a lot of perspectives (financially, operationally, etc. rather than looking from the outside only.