The investor’s field guide · D
Due diligence
The investigation of a business, its people and its obligations before deciding whether and how to proceed.
Explained by the editorial team
Due diligence tests what you have been told against evidence. In an acquisition or investment, it may cover financial, commercial, legal, tax, operational and technical matters. Its scope should reflect the business and the proposed transaction rather than a generic checklist alone.
How it works
An investor might reconcile sales to bank receipts, examine customer contracts, check ownership of intellectual property and speak with management. An acquisition buyer may also investigate employees, premises, equipment and dependencies on the outgoing owner. Each answer can raise a more useful next question.
What it cannot do
Investigation does not eliminate uncertainty or guarantee future performance. A clean report is only as useful as its scope, information and assumptions. Keep a record of unresolved questions and assess whether they affect price, structure or the decision to proceed. Specialist legal, tax and financial work should be handled by appropriately qualified advisers. Responsibility for the investment decision remains with the person making it.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.