Due diligence is the process of screening a business entity prior to entering into a business contract, whether it’s with the vendor, client, or third party. It’s also a foundational element of good governance, calling for individuals and groups to act with the same level of care and concern as any reasonable person would in similar circumstances.
It was once a given that when a company’s board directors conducted due diligence, it was an entire team of auditors physically coming to the office and searching through file after record of financial information and documents. While there are some situations in which this is necessary however, the majority of companies are now conducting their due diligence via the use of a virtual information room (VDR).
The following are the principal types of information that are requested in due diligence:
This includes all financial records, such as tax records as well as financial evaluations and audits by third party providers. These will include profits and losses statements Cash flow projections, balance sheets, and more.
Information about the products and services the company provides, including any R&D projects that are ongoing. This could include a list of trademarks, patents and other intellectual properties.
Buyers also want to know a company’s competitive edge that can include information like their customer base sales pipelines, sales pipelines, market reach, and more. This can be achieved by analysing a company’s previous data on these factors and by conducting interviews with customers who are already in the company.
As the seller, you must be willing to disclose the information that a prospective buyer might want. It’s not enough to divulge everything, as it’s vital to safeguard your intellectual property. It’s important to control access to ensure that only the most reliable partners have access to your most sensitive data.