When you’re looking at a potential property purchase, an acquiring company examining a target before the merger or acquisition or even when you’re applying for a job, performing due diligence means going through an extensive and thorough process. The more thorough and comprehensive the analysis is more likely you’ll be confronted with unnoticed risks or unexpected issues that could jeopardize the transaction.
Due diligence is performed in two main types of business transactions -the purchase or sale of services or goods, and mergers and acquisitions. The steps you need to perform for each may differ dramatically, depending on the particular situation and the nature of the transaction.
You’ll have to review the conditions and terms of the agreement, and also analyze the financial statements of the company. This involves analyzing the assets and liabilities as well as cash flow. Also, you will evaluate the intellectual property of the company, such as trademarks, copyrights and patents. You will also determine any third party agreements relating these assets. You’ll also be able to assess the company’s compliance with applicable laws regulation, environmental standards, and regulations.
Due diligence is more thorough during a merger or an acquisition than it is during a purchase or sale. You’ll look at the strategic goals and determine whether the two companies are an appropriate match. The company’s growth prospects as well as the possibilities for market expansion and the scalability of its business to meet increasing demand. You’ll also be examining the corporate governance practices of the company, as well as its adherence to ethical and social standards and any social responsibility initiatives. You’ll also look at any major risks that could impact the company’s future growth and achievement, and formulate strategies to mitigate these risks.