Types of Due Diligence

Due diligence is a vital aspect of making informed choices especially prior to a major transaction like the merger or acquisition. The procedure involves looking into and analyzing different aspects of a company or venture to ensure that both parties are aware of the risks that are involved. Due diligence may be operational, financial or legal.

Financial due diligence involves looking at the financial health of a business through a review of profit and loss statements, balance scaling up business operations with cloud-based data rooms sheets and other documents. This helps stakeholders recognize potential risks and decide whether the business is suitable for their investment. Operational due-diligence checks the quality and capabilities of management IT systems, management, and production systems. This may uncover hidden risks and liabilities that might not have been revealed in financial reports.

Legal due diligence involves the study of all legal documents, including license agreements, contracts, in-progress litigation and other legal documents. This can uncover any legal risks and liabilities, while also ensuring that the company adheres to all legal requirements.

Sustainability due diligence is becoming increasingly important as consumers and workers insist that companies stand on environmental issues, like carbon neutrality. This type of due diligence can reveal a myriad of issues that have to be addressed, from how a company handles its environmental footprint to the way it handles recycling, and other sustainable practices.