Due Diligence is a complete and comprehensive business check. It is carried out before buying a business, land, or when they want to assess the company’s state. Due diligence is often used to determine a potential asset’s prospects.
Briefly about due Diligence
The main assessment work is carried out through due Diligence. The purchase price of an asset is formed during preliminary negotiations.
Before due Diligence, the parties agree. The target company guarantees access to information, and the investor – payment of compensation if he refuses the deal.
Even international holdings prefer to order due Diligence from consulting and audit companies.
What questions to ask before starting due Diligence?
To understand the intentions of the representative of the target company, it is worth voicing these questions during the preliminary negotiations.
Why are you selling the business?
The main question sets the tone for the rest of the negotiations. If the seller does not have a clear answer, this is cause for concern. Perhaps the business is unprofitable, and its reputation is completely ruined.
Have you tried to sell the business before?
Salespeople are reluctant to talk about failed sales. However, this may shed light on the company’s poor performance.
Do you have a business plan?
The presence of the business plan itself does not mean anything. It is important to compare forecasts with actual performance. Some entrepreneurs report inflated results based on projections.
Do you have an organizing board?
This is a cross-section of the entire company. The investor will see how the management works, who is responsible for what, and to whom he reports. A legal organizing board will help you see subsidiaries, structures, and other investors.
Real estate due Diligence
Due Diligence in real estate is an inspection of a property, during which expertise in the following key areas: legal, financial, technical, and risk assessment.
A due diligence audit is carried out to avoid a potentially dangerous operation for the buyer. For example, the case when, after the real estate purchase, it turns out that third parties can claim the object or some debts are registered on it.
Financial due Diligence
Financial due Diligence is an assessment of the business of enterprises, which is carried out by independent experts and includes the following:
- Analysis of the balance of the object of independent verification.
- Analysis of gross profit indicators.
- Analysis of working capital, which includes: a general description of current assets, inventories, short-term financial investments, receivables and payables, and other assets.
- Consideration of non-current assets is also carried out.
And finally checking the cash flow on the accounts
Legal due Diligence
Legal due Diligence (aka legal due Diligence, legal due Diligence) is a procedure for checking and collecting data to identify civil law risks and possibly bringing them to administrative responsibility. The significance of the identified risks and the case of their depreciation is considered.
Comprehensive due Diligence
Comprehensive due Diligence of the company is the most complete and detailed audit of the company’s activities, which includes the following audits: financial, legal, tax, market, technical, and other analyzes that are of interest to the customer.