Due diligence refers to the investigation and analysis that a company or individual conducts before entering into any transaction, like investing in an enterprise. Due diligence is required by law for businesses that wish to purchase other businesses or assets. It is also required by edge computing: bringing processing closer to data sources brokers to ensure their clients are informed before they agree to an agreement.
Investors usually conduct due diligence when evaluating possible investments. This could include mergers, corporate acquisitions or divestitures. Due diligence can reveal undiscovered liabilities, such as legal disputes or outstanding debts that will be revealed only after the fact, which might affect the decision to conclude an acquisition.
Due diligence can be divided into three types: commercial, tax, and financial due diligence. Commercial due diligence focuses on a company’s supply chain and market analysis and its growth prospects. Financial due diligence review analyzes the financial records of a company in order to ensure that there aren’t any accounting irregularities and that the company is on solid financial footing. Tax due diligence examines the tax liabilities of a business and identifies any outstanding taxes.
Often, due diligence is limited to a negotiated timeframe, called the due diligence period, in which buyers are able to assess the purchase and ask questions. Based on the type of deal, buyers may require the assistance of a specialist to conduct this research. A due diligence on environmental issues could include a list of permits for environmental protection and licenses owned by a company, whereas a due diligence on financial matters could require an audit by certified public accounting firms.
