Due diligence revolves around conducting checks into all aspects of a business or individual/vendor you are planning to work with. It is done to make sure that you are protected from possible reputational, regulatory, and strategic risk; to ensure everything is above board and to avoid the possibility for any potential reputational damage or even prosecution.
When conducting a due diligence check, there are a wide variety of potential things you may wish to check and assess depending on your industry and exactly what you are looking for. The most important aspects widely covered during due diligence include reviewing the financial information, performance, and forecasts of a party; investigating the current market position of a business to establish current market standing; a firm’s current operation to assess its potential for upscaling; and the skillset, background checks, and susceptibility for bribery/fraud risk for prospective working relationships and stakeholders.
This is however, not an exhaustive list. Other examples of things often covered during due diligence include market data, a party’s offering, the legal and tax history of a company or individual, and more.
It is important to remember that when it comes to an investment the role of due diligence is not just to assess pros and cons. It is instead more like a property survey — you know if the house is a good fit, but you want to check the foundations for rot, that the roof isn’t likely to fall in on you, that the floor won’t collapse, etc.
It is worth remembering also, when it comes to a business acquisition/merger/investment, the benefits of due diligence do not just lie with the purchases, they can also extend to the seller/investee as a well done check could bring to light stark culture differences, goals, etc. that would, in the future, lead to the proposed dealings going awry.