Due diligence allows for key information to surface between both parties (buyer and seller) to be known off.

Doing due diligence is crucial as it reveals key information and develops transparency and trust between both parties (buyer and seller). This process is not about protection. It facilitates vital information to surface that is crucial for informed decision-making in business transactions.

When beginning to evaluate a business to buy or invest, there are a number of factors to be aware of, to verify a business, inspect the value and status of a business. This evaluation shall commence after receiving financial, legal and other forms of information (incorporation type, stakeholders, etc.) to enable better analysis to support an informed decision.

To elaborate on this process:

It includes visits, meeting, vetting, checking, contacting, verifying and evaluation.

• Vists & Meeting: Visits to the business facilities, engage with employees, contacting the customers & suppliers alongside thorough checks of inventory & assets.
• Vetting & Checking: Thoroughly vetting of existing contracts, legal documentation. Review reconciliation of books, tax returns, financial statements and other records.
• Verifying and Reconciling: Focus on verifying Receivables, Payables and other types of Receivables and Payables. Reconcile and seek confirmation from concerned parties.
• Market evaluation:Analyze customer patterns, marketing strategies in place, competitors and business’s market position. In addition, assess the business’s reputation and employee-employer relationship, etc.

Take-away:

The above stated process is a sample of the behind-the-scenes when due diligence is taking place. Some business may require an extensive type of due diligence and some may require basic due diligence. The due diligence varies accordingly. However, it is highly recommended to conduct due diligence of a business before proceeding to selling or buying a business. It allows for no surprises to appear after a transaction has occurred. Doing any form of due diligence can really help you understand a business in depth from a lot of perspectives (financially, operationally, etc. rather than looking from the outside only.