Due diligence is a method of ensuring that an organization is vetted prior to concluding business agreements that involve a third party, vendor or customer. It’s also an essential element of good governance, requiring people and groups to conduct themselves with the same level of care and concern that a reasonable person would in similar circumstances.

It was once common knowledge that when a company’s board of directors conducted due diligence, it would involve an entire team of auditors physically going to the office and spending days looking through file after file of financial information and documents. Although there are still instances where this is required, the vast majority of companies do their due diligence in the use of a virtual data room (VDR).

The following are the principal types of information requested in due diligence:

A complete financial history including audits in the past, tax records and any financial assessments from external sources. These will include profit and loss statements and cash flow projections. balance sheets and more.

Information about the products and services that a company offers, as well as any R&D projects that are ongoing. This can include a listing of patents, trademarks, and other intellectual properties.

Buyers are also interested in the competitive advantages of a business which can include information like their customer base, sales pipeline market reach, and so on. This can be accomplished by analyzing the information companies have on these aspects, and by contacting current customers.

As a seller, you should be able and willing to provide the information requested by a prospective buyer. It’s not enough to disclose everything, as it’s necessary to safeguard your intellectual property. It’s important to control access to ensure that only your most serious partners have access to your most sensitive data.

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