FAQs
1. What exactly is due diligence?
Due diligence is an extensive process generally done before an acquisition, investment or business partnership to determine whether there are any potential risks.
2. Why is due diligence important?
Due diligence helps investors and companies understand the risks involved, the status of the deal and whether the deal fits with their portfolio. Due diligence is important because of the following reasons:
- To identify the potential risks involved in a deal
- To gain information to evaluate the deal
- To identify business opportunity if there is any and whether it complies with the investment criteria
3. How do you conduct due diligence?
The steps that are involved in conducting due diligence are as follows:
- Understanding the key objectives of the project
- Analysis of business financials and documents
- Proper screening of final offering
- Risk Management
4. What if you don’t conduct your due diligence?
If you don’t conduct due diligence, you might purchase a business or product that isn’t a good financial investment. You might make a purchasing mistake and end up on faulty or incomplete information.
5. What are some examples of due diligence?
- Reviewing and auditing financial statements
- Analyzing the consumer market
- Inspecting projections for future performance
