What Is Due Diligence in Business Sale

The term Due Diligence (Due Diligence) is rarely given due attention in the business press. However, this concept is often used in business circles, sometimes without a clear understanding of its meaning. There are several interpretations of the term “due diligence”, “close observation”, “verification of due diligence,” “a comprehensive study reliability of the information”, “a comprehensive study of the company, its financial condition and market position.”

“Due Diligence” is most often used in the western investment banks and represents a set of actions to ensure project minimal protection from the unexpected. It is clear that they deal with the evaluation of companies or other customers in terms of the interests of banks.

The Purpose of Due Diligence

The aim is to conduct a due diligence analysis, which allows economic agents to eliminate or significantly minimize the possible negative consequences of the bargain, and the optimization of business processes in the future of the company.

The Term Due Diligence

In companies where the main activity – the provision of services of this kind need to limit the period of testing due to the fact that the customer should not lose interest in the services of the company for a while, until the manager finds her loyalty.

Types / areas due diligence

There are several ways to purchase an existing business that can take advantage of the investor:

1) The acquisition of shares (stakes in the authorized capital) of the organization;

2) The acquisition of the underlying assets of the company;

3) The purchase of an enterprise’s assets;

4) Reorganization of the legal entity in the form of merger or acquisition.

Each of these methods has its pluses and minuses. Select one appropriate to a particular situation is quite difficult.

Purchase of shares (stakes) in a multi-stage, but quite burdensome and order processing, and the speed of its implementation.

The procedure of Due Diligence

Experts estimate the benefits and obligations of the proposed transaction by the analysis of all aspects of the past, present and projected future of the acquired business and identify any possible risks.

The analysis is based on internal information, regulations, data provided by competitors and partners. During this work, it is necessary:

check the accuracy of the financial and other internal information;
find confirmation of estimates / assumptions incorporated in the business plan;
assess the feasibility of short-term and long-term strategy;
ensure proper registration of all documents in terms of their compliance with the law and internal rules of the company;
verify the accuracy and timeliness of submission of tax and statistical reporting;
to evaluate the company’s competitive position in the market in which it operates;
detect the presence and amount of foreign debt and other;
Make sure that the company is competent enough to implement the plans.
Due Diligence is a comprehensive analysis of the totality of relationships within the company and its interaction with the environment in which it operates.