Due diligence isn’t a term that gets your heart racing but it’s an essential business practice when selling or buying a business. It is the process of examining all aspects of the company to ensure that all parties involved have a good understanding of what they’re entering into.
The process could take 30 to 60 days, however it should begin as soon as possible to avoid any confusions and legal implications. Companies must prepare for the process by creating the document library that contains all relevant documents and records. This will save time and money during the actual investigation.
Due diligence can take many forms, depending on the company and nature of the transaction. Here are some of the most common types:
Legal Due Diligence
This type of due-diligence examines any potential liabilities that could impact the success of a deal. It typically involves carefully reviewing the entirety of contracts that are essential to the transaction like licensing agreements or partnership agreements, term sheets, loan and bank financing agreements.
Commercial Due Diligence
This involves evaluating the market for the company in terms of size and growth, as well as competition. It can also include interviews with customers, assessing competitors and creating a fuller analysis of the strengths and weaknesses of a company.
This type of due diligence focuses on all the information that is available about the case at hand, including any evidence that could be used against an accused individual. It also includes analyzing all evidence that could be exculpatory available. This is what a prosecutor will do when deciding whether to file charges against anyone.