Due diligence is an investigational process that is undertaken prior to making major business decisions like mergers, acquisitions, or investments. It is a thorough review of all aspects of the company’s operations to evaluate the company’s assets, liabilities, and overall financial health. It also examines legal risks and compliance. M&A deals that fail are often the result of insufficient or incorrect investigations.

Due diligence comes in many forms each with specific requirements. The primary objective of due diligence is to identify any potential issues that could undermine the deal or increase post-transaction risk. It’s crucial to have a variety of sources to conduct your research. This can include free search engines and paid online information services and specialist databases.

There are two types of due diligence: hard and soft. Hard due diligence focuses on data and numbers and includes reviewing audited financial statements including profit and loss accounts, balance sheets, budgets and projections. It also involves a deep dive on a company’s lease agreements as well as contracts and details of real estate (deeds and mortgages as well as title insurance and www.aboutvdr.com/what-is-a-vdr-virtual-data-room/ use permits), as well as the purchase and sale histories. This data should be compared with similar businesses to determine the size of the business and its potential growth.