When you’re looking to acquire a new company or make a significant investment, nothing is more important than thorough due diligence checks. After all, commercial due diligence is how you ensure that every investment is good for you and that the risks never outweigh the gains.
A key part of this is undertaking a proper, organised checklist. This way, you ensure nothing is left out and you can be assured that you have completed your checks as accurately as possible. So, just what is involved?
What Is Due Diligence?
Due diligence is the act of assessing a potential purchase or acquisition, looking at its risks, benefits and financial standings. In other words, you’re looking at your latest target to see what would happen once it becomes part of your organisation. Are there weak links that need to be fixed? Are there financial difficulties that will affect your existing business? Are there any major risks that need to be considered?
These are all vital questions to ask and due diligence is, in essence, the process of answering these questions. This should result in a thorough understanding of the business in question so that you, as a buyer, know what is most likely to happen if you go ahead with the acquisition.
How Does A Due Diligence Checklist Work?
As the name suggests, a due diligence checklist is a checklist of various factors and criteria you need to uncover within your target business. This way, you have a series of factors that you know are important and, when undergoing the checks, you can ensure each and every criteria is taken care of.
At the end of the process, you can look to the checklist to see what this potential purchase did and did not meet. This way, you can assess each area individually. It might be possible, for instance, that a company has a weak link somewhere but, if it is something your existing structure can easily replace or resolve, this might not actually be a problem. The right checklist will break this down for you.
What Should You Be Checking For?
Every industry has its different needs, but there are always a few things to consider when undertaking commercial due diligence. Finances are the most obvious factor, as you need to ensure the company has no existing debts, obligations, loans or other financial burdens that you can’t handle once they become yours.
One key area that many people underestimate, however, is that of logistics. Many companies live and die by their own logistics operations. A poorly planned chain wastes money moving goods around, causing each product to reduce in profits. This is often the case for smaller companies, which have to rely on third party solutions. However, if you’re taking such a business into your fold, you might already have more effective solutions. This would cut down on expenses and steps. If this is something that comes up in your checklist, you can then see if your existing structure can be of benefit.