Due diligence is the process of obtaining, reviewing and analyzing all information received for a transaction – acquisitions, investments, partnerships. The goal is to thoroughly analyze and verify the financial performance, assets, business, and capabilities of a deal. This procedure can also be conducted by anyone seeking comprehensive information about anything. As a business person or investor, there are certain things you need to do before venturing into any form of transaction with anyone.
In this context, we will discuss due diligence concerning investments and businesses. This article will elaborate on the necessary things you must verify before making an investment or entering into a strategic partnership.
Types of Due Diligence
There are different types of due diligence, depending on the information you seek. However, we have listed the most common types of due diligence:
1. Legal Due Diligence
The process of legal due diligence aims to ascertain the state of a deal that involves verifying title to assets, confirmation of existing encumbrances, control mechanisms, legal and regulatory compliance, among others. Common documents of interest are registration and corporate documents, regulatory applications and approvals, board approvals and meeting minutes, title documents, compliance papers, contracts and corporate documents.
2. Administrative Due Diligence
This form of due diligence deals with vetting items under an administration, such as workstations, occupancy rates, facilities, and more. The primary goal is to verify the facilities occupied, owned, or run by the business and determine if running costs are included in the financial performance.
3. Financial Due Diligence
Arguably the most common type of due diligence, financial due diligence typically involves a fiscal audit. The process aims to verify financial records that have been provided in the transaction Information Memorandum, while the bigger goal is to understand the financial performance of an asset or business and determine its stability or underlying problems. Common items used in financial due diligence are contracts, inventory schedules, projections, forecasts, financial statements, receivables etc.
4. Asset Due Diligence
The due diligence report for assets usually contains detailed information about fixed assets. These assets could include mortgages, permits/licences, equipment lease agreements, real estate deeds, title deeds, and other details of purchases and sales of capital assets within a specified period of time, typically the past three to five years. Most importantly, do not forget to verify the physical location of these assets.
5. Taxes
Tax due diligence involves reviewing the tax profile of an asset or business to ascertain tax liability and accuracy of filing to prevent under-reported taxes. The process also verifies tax-related cases with tax agencies. In addition, it helps you confirm if the company or business is in the right standing with tax regulators.
How to Start Due Diligence
Conducting a due diligence exercise can be a lot of work depending on the details of the information required. Typically, the process is thorough and may involve a web of sub-processes, which could pose a challenge for anyone without the necessary skills and know-how.
This is where Pinnacle Business Solutions (PBS) comes in. PBS offers due diligence services, taking the reins on your financial dealings to ensure that with every deal you close, you made the right decision. We have a network of seasoned professionals who offer quality services to investors, Private Equity firms, founders and manufacturers producers looking to expand their distribution value chain in a cautious manner.
Please feel free to contact us via email enquiries@pbsconsulting.co for further assistance.
