Due Diligence - what is it and what are its benefits?
The Due Diligence procedure has been around for a long time. During the history of its existence, it has changed both the color and the main directions, but still remains very useful and in demand in business. The term Due Diligence itself was first used in jurisprudence in the United States at the beginning of the last century. It was used to indicate the broker's disclosure procedure to a potential investor about a company whose shares are traded on a stock exchange. Today, Due Diligence is understood as the collection and analysis of information of various kinds (financial, legal, economic, personnel) about the company in order to determine the possible risks in case of choosing it as an object of investment. The information base for the Due Diligence procedure is the internal documentation of the company (if it provides it), as well as information obtained from competitors and other sources (databases, registers). As a result of the procedure, the person who ordered it receives objective information about the activities of a company.
What is Due Diligence for?
1. Verification of information about the financial efficiency of the company.
2. Check of conformity of activity of the enterprise and the documentation available at the enterprise to requirements of the law and internal norms.
3. Analysis of the correctness of the formation and timeliness of submission of various types of reporting (tax, accounting, statistical).
4. Assessment of the level of competitiveness of the company in its market segment.
5. Search for arguments for the possibility of implementing a new business plan.
6. Assessment of the level of competence of the personnel component of the company in terms of its implementation of strategic goals.
When to use the Due Diligence procedure?
1. In case of a planned merger or acquisition of a business.
2. When buying an existing business.
3. When acquiring a large block of shares or stakes in the company.
4. In case of granting a loan to another enterprise.
5. With targeted funding (including sponsorship or gratuitous).
6. With the planned cooperation with a new partner company.
7. When establishing newly arrived partners.
8. When buying real estate.
9. Due Diligence is carried out both comprehensively (comprehensively) and in individual industries - financial, legal, etc.
Investing in which companies requires Due Diligence?
1. Beginners, just created companies, the so-called Start up.
2. Companies that are at the initial level of their development, the so-called Early stage. Such companies already have the first profit and sell a trial version of the product, but require investment to achieve the end result.
3. Companies in the expansion or expansion phase. Such firms seek to develop new market segments, which requires additional investment.
4. Companies that are at the stage of transformation of the organizational and legal form of activity. For example, state of emergency growing into LLC. This stage is also called the "bridge financing" stage.
5. Existing business, planning to acquire another existing business and for this purpose attracting investment, the so-called Management Buy-Out.
6. Firms in need of investment to stabilize their financial condition or Turnaround.
"Sowing companies" or Seed. Such companies are projects that require investment to deepen research or develop trial units.
Summing up, we note that the application of the Due Diligence procedure is, of course, most effective before investing in the company, however, if the investment has already taken place, this procedure will also be useful to determine the further direction of interaction depending on the data obtained. In other words, better late than never. You can order this procedure from various companies providing legal and accounting services, as well as from experienced lawyers and attorneys. Professionally and qualitatively the Due Diligence service will be carried out by the lawyers carrying out the activity on the Lawyer.ua portal! Take care of a successful tomorrow today!
