Due diligence is a phrase that is commonly used in the business world. It is the act of acting with care and caution. Investors who want to limit their risk do their own due diligence prior to making an investment. Broker-dealers are required to inform the third party of all details regarding a transaction to ensure that they do not www.aboutvdr.com/how-to-win-business-with-collaboration/ get held responsible. Companies looking to acquire another company also conduct their due diligence.

This article focuses on the various types due diligence and how they relate to the overall process.

The most basic form of DD is regulatory due diligence, which analyzes the compliance or legal risks associated with the transaction. This kind of DD is especially important in highly-regulated sectors like finance and healthcare where a breach of compliance could result in fines, penalties, or even shut down of operations.

Financial due diligence is the most popular type of DD. It checks whether the financials presented in a Confidentiality Information Memorandum (CIM) are correct. It usually involves looking over all financial statements and financial statements, including liabilities, assets and cash flows, as well as projections. FDD also reviews contracts and agreements, including partnership and licensing agreements, term sheets loans and bank financing agreements, and many more.

Administrative due diligence is a type of due diligence that concentrates on administrative-related items. This kind of DD for instance, examines the number and occupancy rate of the facilities leased or owned by the company, as well as the staffing levels. It could also include a look at employment contracts, nondisclosure and non-solicitation agreements, as well as any other documents related to human resources.