Due diligence is an investigative process that is undertaken prior to making business decisions like mergers, acquisitions and investments. It is a thorough analysis of the company’s assets and liabilities, and overall financial health. It also checks for legal risks and compliance. Incorrect or incomplete investigations are one of the leading causes of M&A deal failures.

There are many types of due diligence and each has its own unique set of requirements. However, the principal goal is to find potential problems that could undermine the transaction or increase risk post-transaction. To accomplish this, it’s important to have a variety of resources available to conduct the research. This can include paid online information services, specialist databases and search engines for free.

There are two kinds of due diligence: soft and hard. Hard due diligence is dependent on numbers and information such as audited financial reports Profit and loss statements, budgets, balance sheets and projections. It also involves a deep dive on the lease agreements or contracts, as well as details related to real estate (deeds and mortgages, title insurance, and use permits), as well as the purchase and sale histories. The information should be compared to similar companies to get an idea click to read of the size of the business and its potential growth.