Due diligence is a crucial element of making a well-informed decision, especially prior to a major transaction like a merger or acquisition. The process involves researching and evaluating the various aspects of the venture, company or other entity to ensure that all parties are aware of the risks involved. There are multiple types of due diligence that include operational, financial environmental, legal and more.
Financial due diligence is the process of evaluating the financial health of a business through a review of its profit and loss statements as well as balance sheets. This allows stakeholders to identify potential risks and determine whether the company is suitable for their investment. Operational due-diligence examines the management’s performance, IT systems, and production capabilities. This could reveal hidden risks and liabilities which might not have been disclosed by financial records.
Legal due diligence is the examination of everything legal including license agreements, contracts as well as pending litigation and other legal documents. This can uncover any legal risk and liability, as well as making sure that the company is adhering to all legal requirements.
Sustainability due diligence is becoming more important as both workers and consumers demand companies take a stand on green issues, including carbon neutrality. Due diligence can reveal a variety of issues, for link instance how a company handles their environmental impact or how they manage recycling and other sustainable practices.
