All You Need to Know About Due Diligence

business due diligence processThough the phrase ‘due diligence’ has been used for centuries to convey the care that a practical person would take to avoid harmful situations, in the last 100 years, it has taken on new meaning.

What Is Due Diligence?

Synonymous with the legal term ‘ordinary care,’ business due diligence has come to mean the research or audit a company would perform before investing in or acquiring another firm. Individuals are also encouraged to “do their due diligence” before making any major financial decision, like purchasing a home or obtaining a loan. In lamest terms, this simply means doing your homework and vetting your options.

But the more you have a stake, the more important due diligence becomes. The due diligence audit includes studying annual reports, Securities and Exchange (SEC) filings, independent research and much more, to determine whether the investment would satisfy return requirements, income needs and asset allocation goals. Because of these high stakes performing business due diligence on a potential investment often involves the assistance of a professional, like a business brokerage firm such as Sunbelt.

The Due Diligence Process

The business due diligence process can be a lengthy one, especially when it comes to private companies or large companies with a global presence. While the process can be convoluted and confusing, the most important thing to do is to take note of any discrepancies in company reporting.

Depending on the industry and situation, the due diligence process can vary. But generally speaking, it includes the following:

  • General Company Info

This includes company history, business plans, mission statement, goals, etc.

  • Company Management & Employees

This includes everything from the number of fulltime employees to the credentials of the company’s manager.

  • Legal Matters

This includes a discussion of past, present and pending litigation, contracts, legally binding agreements, warranties, product liability documents, and more.

  • Products & Services

This includes the product/service offered by the company, pricing strategies, service agreements, company patents, copyrights, trademarks, licenses and more.

  • Marketing & Competition Information

This includes the company’s marketing plan, branding materials, industry analysis, growth opportunities, etc.

  • Financial Matters

Perhaps the most important aspect, the financial records to review include balance sheets, income statements, growth projection, insurance coverages, tax filings, etc.

  • Customers

This includes all information about the company’s customers.

  • Operations

This would include the company’s assets, facilities, equipment, inventory, quality assurance reports and more.

If you need help during your business due diligence process or are in need of professional expertise, Sunbelt Business Brokers is here to help you. Our industry experts can lead you through the due diligence process, provide you with advice and help you close a competitive deal. Find your local Sunbelt Business Brokers here.

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