Due diligence is an arduous investigation process that is conducted prior to making important business decisions, such as mergers, acquisitions or investments. It is a thorough review of various aspects of the company’s activities to assess the company’s assets and liabilities as well as its overall financial health. It also checks for legal risks and compliance. M&A deals that fail are usually the result of insufficient or inaccurate investigations.

Due diligence comes in many forms and each has its own set of requirements. However, the main goal is to find potential problems which could hinder the transaction or increase the risk after a transaction. It’s crucial to have a range of sources available to conduct your research. This could include free search engines, paid online information services and specialist databases.

There are two primary categories of due diligence: soft and hard. Hard due diligence is dependent on numbers and information like audited financial records Profit and loss statements as well as budgets, balance sheets, and projections. It also involves a deep look at a company’s contracts and lease agreements, real estate information (deeds mortgages, mortgages, title policies and use permits), and purchase and sales history. It’s crucial to compare these data with similar companies in the industry to get a feel for the size of the company and its potential growth.