Different Types of Due Diligence
Many people want to know about the advantages and disadvantages of any item they invest time, money, or energy on, whether it’s a new car, a home, or a whole company. They want to be sure they’re making the right choice and won’t be caught by unexpected surprises later. This is why they conduct due diligence, a process that examines a purchase or investment to assess risk.
Due diligence is classified into a variety types, including financial, commercial, environmental and intellectual property. The areas that are examined are based on the type due diligence is conducted, but can include licenses, contracts and loans, employment issues, regulatory concerns, property, and any litigation pending.
Financial due diligence is the process of confirming and evaluating the financial data behind including earnings and profits and liabilities as well as assets and cash flow and debt. This includes analysis of ratios by using financial tools and sizing up a business to create projections of future performance.
Commercial due diligence is an approach that focuses on a company’s marketplace and competitors. It can be used to determine whether the business will be profitable over time. It can also help identify synergy opportunities and success with an acquisition or merger.