It is said that business is calculated risk. But what if it is miscalculated? Prior to entering into a business venture, an M&A, or investing into a portfolio, vetting the target entity or future partner, should be considered essential by any reasonable investor.

Due diligence is a process to evaluate a potential business target, partner or buyer and to appraise the associated risk. Based on this result, one can make a better decision, whether engaging with the target is worthwhile.

A due diligence, carried out in a professional way, can help reduce the risk, that is, it helps to calculate it in a more realistic way.  It can also help to price the deal.

However, due diligence can be quite complex. In the digital world, although it is true that there is more access to information, it is also easier to hide them. Financial transactions, business interests, tax issues, relationships, reputations can be easily disguised, making to reach a responsible decision harder for the acquisition.

Due diligence can be many faced: legal, financial, tax-related, reputational, etc. Most of these services are provided by specialized firms: one can deliver excellent results in financial due diligence, while performs poorly in the reputational one, and so on. So when engaging into a business venture, identify the greatest risks. Should those be legal? Financial? Find the right provider for it!   

Although not very often, but due diligence can be valuable after a business venture took place. The fact that a serious due diligence was carried out on the target business entity or person, could shield the investor from future harm, should third parties (e.g. the authorities) later discover something illegal or damaging re the target. When the question comes “Did you do your best to avoid such and such problem?” the answer can be that decision was based on a rigorous due diligence which at the time of elaboration did not identify such threat.

Quality due diligence requires high level of research, prudence and consideration.  While it can reduce business and operational risks, it can also help among other things identifying opportunities (e.g. to reduce costs), improving understanding of markets and strategic sources, strengthening the management.

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