Due diligence is the process of screening a business entity before concluding a business agreement regardless of whether it’s with vendors, clients, or third party. It is also an essential element of good governance. It requires groups and individuals to behave in the same way as a reasonable person under similar circumstances.
In the past due diligence was usually conducted by a board of directors that would bring in auditors to spend a long time going through the financial records and other information. There are instances where this is required, however the vast majority of businesses conduct their due diligence using the virtual dataroom (VDR).
The following are the main types of information that are requested during due diligence:
A complete financial history, which includes audits and tax records from the past and any financial evaluations from external sources. This includes statements of profit and loss Cash flow projections, balance sheets, and more.
In-depth information on the products and services a company offers, including ongoing R&D projects. This may include a list of any trademarks, patents and other intellectual property.
Buyers are also interested in knowing a company’s competitive edge that could include details like their customer base sales pipelines, sales pipelines, market reach, and much more. This can be achieved by studying a company’s current data on these elements and also by conducting interviews with current customers.
As a seller, it is your dataroom responsibility to be prepared and willing to provide the information requested by a prospective buyer. However it’s not an issue of just giving everything away, since it’s essential to protect your intellectual property. It’s often advisable to stage access control so that only serious partners can access your most sensitive information.