Due Diligence — an investigation into the performance of the business concluding in a report. It is common to conduct due diligence to prepare for a major contract or an agreement. The report aims to show the future partner the exact state of affairs. Due diligence process can be obligatory or based on goodwill.
What does Due Diligence examine?
The exact meaning of due diligence is required carefulness or reasonable care. It is commonly used in business transactions and corporate finance for purposes. It is a vital part of preparation for M&A (merger and acquisition), evaluating the company’s market attractiveness before the supposed deal. In this scenario, due diligence can include any or all of the following spheres: financials, marketing, management practices, legal and compliance audit, company secretary audit, market positioning, production audit, IT systems evaluation and cyber security, compatibility report, and more.
What you need to know about Due Diligence
There is ‘soft’ and ‘hard’ due diligence. Traditionally, the hard approach stands for evaluating tangible numbers: the financial performance, assets, liabilities, and so on. The soft approach looks into benefits that a harder to quantify. Company culture, the management team and their previous experience, mission and vision of the company are all part of that evaluation. In 2007 the Harvard Business Review labeled it “human capital due diligence”, stressing the importance of evaluating the human factor.
What investors look for when doing a Due Diligence for Singapore startup?
- Healthy financials. Ideally, the company should show ROI that outperforms the market.
- Development Strategy. You need to know what you expect to achieve, how exactly you will do it, and how much investment and time it takes.
- Market position. You should be different from your competitors in a clear and positive way.
- Exit strategy. Since nearly a half of startups fail within the first couple of years, investors tend to protect their funds against this possibility
- Harvest strategy. Change in the market factors beyond your control may affect your business. Investors often include conditions to collect the fruit before a new technology, regulation, or market setup makes your company unattractive.
What is third party Due Diligence?
In the anti-corruption space, third party due diligence is used when we are speaking about the onboarding of a third party member. It's important to conduct a thorough due diligence in this case. It helps companies to see clearly who they are working with in terms of business potential and risk.
How long does Due Diligence take?
It is usually recommended to take between 30 and 60 days to complete due diligence.
Audit and Due Diligence. What's the difference?
Generally speaking audit is mainly focused on finances and numbers while due diligence, though it can be connected with the company's financial state, checks much more: from company's legal to accounting and tax matters.
What is Commercial Due Diligence?
Commercial due diligence services are connected with measuring a company's commercial attractiveness. It helps the prospective buyer to make an informed decision, and highlight any potential risks.