Types of Due Diligence

A due diligence procedure is a crucial element of making informed decisions, particularly prior to major transactions such as a merger acquisition. The process involves researching and evaluating various aspects of the company, venture or entity being considered to ensure that all parties are aware of the risks involved. There are multiple types of due diligence that include operational, financial as well as environmental, legal and many more.

Financial due diligence involves examining the financial health of a company by due diligence simplified: unpacking VDR’s advanced features examining profit and loss statements, balance sheets and other documents. This helps stakeholders understand potential risks and determine whether the company is a good fit for their investment. Operational due-diligence analyzes the reliability and capabilities of management and IT systems and production systems. This can reveal hidden risks and liabilities that may not have been revealed by financial records.

Legal due diligence involves an examination of everything legal such as license agreements, contracts and pending litigation, as well as other legal documents. This can expose any legal risk and liability, as well as making sure that the company is adhering to all legal requirements.

Sustainability due diligence is becoming more important as consumers and workers demand that companies take a stand on environmental issues, like carbon neutrality. Due diligence can reveal a myriad of issues, for instance how a business manages its environmental impact, or how they manage recycling and other sustainable practices.