Due diligence is the process of screening a business entity prior to concluding a business agreement whether with the vendor, client or a third party. It is also an essential element of good governance. It demands that individuals and groups perform the same actions as any other reasonable person in similar circumstances.

In the past due diligence was carried out by a board of directors that would bring in auditors to spend a long time going through the financial records and information. While there are still situations where this is required however, the majority of companies nowadays conduct their due diligence through a virtual data room (VDR).

The following are the principal types of information requested in due diligence:

This includes all financial records, like tax records audits, financial evaluations, and audits by third party providers. These will include statements of profit and loss and cash flow projections. balance sheets and more.

Information about the products and service the company provides, including any R&D projects currently ongoing. This could include a list of any trademarks, patents and other intellectual property.

Buyers also want to know the competitive advantage of a company that could include details such as their customer base sales pipeline and market reach. This can be achieved by studying a company’s current information about these aspects and by conducting interviews with existing customers.

As a seller, you have to be willing to divulge the information requested by potential buyers. However it’s not a matter of just giving everything away, since it’s essential to protect your intellectual property. It’s crucial to control access so that only the most trustworthy partners have access to your most sensitive information.

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