Types of Due Diligence

A due diligence procedure is a vital element of making informed decisions, especially prior to a major transaction such as a merger or acquisition. The process involves researching and evaluating the various aspects of the company, venture or entity to ensure that all parties understand the risks involved. Due diligence can be financial, operational or legal.

Financial due diligence is the process of evaluating the financial health of a firm through a review of its profits and losses statements and balance sheets. This allows stakeholders identify the potential risks and determine if the company is suitable for their investment. Operational due-diligence checks the quality and capabilities of management, IT systems, as well as production. This may reveal hidden risks and liabilities that might not have been identified by financial records.

Legal due diligence is the review of all legal documents, including contracts, license agreements, in-progress litigation and other legal documents. This could reveal any legal risks or simple and practical data room pricing models liabilities, while also making sure that the business adheres to all legal requirements.

Due diligence on sustainability is becoming more crucial as consumers and employees demand that companies adopt positions on green issues like carbon neutrality. This type of due diligence can uncover a variety of issues that must be addressed, from how a business manages its environmental footprint to the way it handles recycling and other sustainable practices.