What is Due Diligence
What is due diligence?
Due diligence is the complete investigative process which gets to the bottom of all aspects of a corporate decision.
It involves reviewing and verifying any relevant information including, but not limited to:
- A company’s financial health
- Operations
- Compliance
- Risk
- Liabilities
Why is due diligence necessary?
Due diligence is all about being informed, and this is one of the most essential priorities at the corporate governance level.
The items in the list above are vital to any company’s continued success, and all can be affected by a wrong business decision. Due diligence will always play a key role in separating those bad decisions from good ones. In other words, it is the make-or-break process for many companies.
What does due diligence involve?
It encompasses a range of activities, typically organised into several key areas:
- Financial: Reviewing financial statements, revenue streams, profit margins, liabilities, and tax compliance.
- Operational: Assessing operational efficiency, production capabilities, and logistical infrastructure.
- Legal: Verifying legal compliance, intellectual property rights, and the existence of any ongoing or potential litigation.
- Human resources: Evaluating the company’s workforce, including employee contracts, benefits, and any pending HR issues.
- Environmental and social: Examining ecological policies, social impact, and alignment with sustainability goals and standards.
These processes should uncover red flags in any of the above areas. From this, corporate leaders can decide on any fundamental risk attached to the company they intend to work with.
Frequently Asked Questions (FAQ)
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