The Different Types of Due Diligence

Due diligence is a crucial activity that protects you and your business from costly errors and risk. Due diligence can be divided into various activities, including risk assessment, background checks as well as intellectual property and financial records review, compliance check to make sure that the target company is in compliance with laws and regulations and site visits/inspections, to validate the accuracy.

It is important to establish an investigative team that has a leader or project manager who can oversee the entire process. While you may rely on your own resources outsourcing to industry or niche-specific consultants is often the most effective method to ensure a fair and impartial investigation.

While the type of due diligence you undertake will be contingent upon the circumstances and details but there are some important areas to think about:

The goal of your investigation is a crucial factor in determining how thorough your research will be. If you’re looking at the possibility of a new partnership or business relationship, it is important to establish the goals of the partnership to ensure that your due diligence focuses on ensuring that you benefit.

Financial due diligence is an essential component of many investigations, and includes examination of profitability margins, balance sheet and analysis of customer accounts as well as fixed and variable cost comparisons, and internal controls. Legal due diligence focuses on every aspect of the legal status of a company with a particular focus on any litigation pending or ongoing and non-compete agreements. Intellectual property due diligence involves examining the trademarks, patents and copyrights to determine infringements. Tax due diligence examines the tax strategy of a business and tax situation to determine if there is any unrecognized obligations.

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