Types of Due Diligence

Types of Due Diligence

Due diligence is an important procedure in many kinds of business deals, such as mergers and acquisitions as well as private equity or venture capital investment and initial public offerings. Additionally, it’s a requirement for many financial transactions such as loans and mortgages. During the due diligence stage it’s essential for businesses to perform thorough checks to avoid unpleasant surprises after the deal has been concluded.

There are a variety of due diligence, and each requires a distinct approach. Some of the most essential due diligence for commercial real estate commonly used types of due diligence include:

Review of financial documents and records, such as balance sheets and profit and loss statements. This typically includes an examination of contracts related to tangible assets like equipment and cars. It could also include reviewing the tax situation of the business, looking for possible tax risks or opportunities.

Legal due diligence involves reviewing the consolidating legal structures as well as ownership arrangements and historic and current corporate documents. It is essential to consider pending and potential litigation, as well any settlements or judgments.

A process of regulatory due diligence is the process of evaluating the compliance of a company’s target to laws and regulations from the government. This is particularly crucial in industries that are heavily controlled such as healthcare or finance. This type of due diligence typically includes a review of the company’s permits, licenses and the history of regulatory compliance. It could be accompanied by a review of the company’s conformity with industry standards and best practice. In this kind of due diligence it is crucial to seek out the advice of experts or advisory companies.