Due diligence is the process of vetting a business entity prior to entering into a business contract regardless of whether it’s with an individual, a vendor or a third party. It is also a fundamental element of good governance. It demands that individuals and groups behave the same way as any other reasonable person in similar circumstances.
It was once a norm that when a company’s board directors performed due diligence, it involved an entire team of auditors physically going to the office and perusing file after file of financial records and documents. There are still instances when this is required, however the majority of companies conduct their due diligence by using the virtual dataroom (VDR).
The following are the most common types of information needed in due diligence:
This includes all financial records, like tax records, audits and financial evaluations by external service providers. These will include the statements on profit and loss as well as cash flow projections, balance sheets and much more.
Information about the products and service that a company offers, as well as any R&D projects that are ongoing. This can include a listing of trademarks, patents, and other intellectual property.
Buyers are also interested in knowing a company’s competitive edge, which can include details such as their customer base and sales pipelines as well as their market reach, and more. This can be done by analyzing the company’s existing data on these elements and also by conducting interviews with existing customers.
As a seller, you should be able and willing to provide the information requested by an interested buyer. It’s not enough to give away everything, since it’s essential to protect your intellectual properties. It’s important to control access to ensure that only your most reliable partners have access to your dataroom most sensitive data.
