Due diligence is a rigorous investigative process carried out before making any major business decision like 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. Incorrect or inadequate investigations are among the leading causes of M&A deal failures.

Due diligence comes in a variety of forms and each has its own set of requirements. The primary goal of due diligence is to identify any potential issues that could sabotage types of due diligence the transaction or increase the risk of a post-transaction. To achieve this, you must have a wide range of sources to conduct investigation. This can include paid online information services, databases for specialists and free search engines.

There are two kinds of due diligence: soft and hard. Hard due diligence focuses on numbers and data, such as reviewing audited financial statements, profit and loss reports, balance sheets, budgets and projections. It also involves a deep dive on lease agreements as well as contracts and details of real estate (deeds and mortgages as well as title insurance and use permits) and the purchase and sale histories. This data should be compared with similar companies to determine the company’s size and potential growth.