Types of Due Diligence
A due diligence procedure is an essential part of making informed decisions, especially prior to major transactions like a merger or acquisition. The procedure involves analyzing and examining the various aspects of a business, venture, or entity to ensure that both parties are aware of the potential risks that are involved. There are various types of due diligence that include financial, operational environmental, legal, and many more.
Financial due diligence involves looking at the financial health of a company by examining profit and loss statements, balance sheets, and other documents. This allows stakeholders to identify the potential risks and decide if the company is suitable for their investment. Operational due-diligence analyzes the reliability and capabilities of management IT systems, management, as well as production. This can uncover hidden risks and liabilities that might not have been disclosed in financial records.
Legal due diligence involves an examination of everything legal including license agreements, contracts as well as pending litigation and other legal documents. This can reveal the potential legal risks and liabilities as well as verify that the company is adhering to all legal requirements.
Due diligence on sustainability is becoming more vital as employees and consumers require that businesses take positions on green issues such as carbon neutrality. Due diligence can uncover a range of issues, including how a company manages their environmental footprint or how they handle recycling and other sustainable practices.
