Due diligence is an investigational process that is undertaken prior to making important business decisions, such as mergers, acquisitions, and investments. It is a thorough analysis of the company’s assets, liabilities and overall financial health. It also examines legal risks and compliance. M&A deals that fail are often the result of incomplete or incorrect investigations.

There are various kinds of due diligence and each has its own set of requirements. However, the primary goal is to uncover potential issues that might sabotage the transaction or increase the risk after a transaction. To accomplish this, it’s crucial to have a range of resources available to conduct the study. This can include free search engines and information services that are paid online and databases that specialize in.

There are two types of due diligence: soft and hard. Hard due diligence focuses on data and numbers, such as reviewing audited financial statements such as profit and loss www.aboutvdr.com/types-of-due-diligence/ statements in addition to balance sheets, budgets and projections. It also involves a deep examination of a company’s contracts and lease agreements, real estate details (deeds mortgages, mortgages, title policies and use permits) as well as transactions and purchases. The information should be compared to similar businesses to get an idea of the size of the company and its potential for growth.