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Mr B agreed in principal to buy/invest in business of Mr. A and signed non binding term sheet or letter of intent or expression of interest and agreed to enter into definitive agreement to finally invest in business subject to due diligence..

So, what is due diligence ?

It is not investigation/forensic audit, it is a process wherein buyer/investor would like to obtain reasonable assurance in the form of independent opinion as to what is said while presenting opportunity and what is thereis one and the same following risk based approach.

In simple terms, due diligence is professional opinion taken before going ahead with the transaction by verifying complete set of documents like pitch deck, business plan, financial models, valuation and basis of such data submitted by management or by investment bankers representing management.

Who does due diligence ?

Majority of due diligence are done by external professionals like CA, CS, Law firms, management consultants and investment bankers. Some of large business groups/ investment banks have their internal team as they need this services often.

Why due diligence is becoming more important ?

Apart from reasonable assurance, now it has became inevitable when it comes to investment due to lot of big time frauds like major Indian pharmaceutical acquisition, overseas acquisition by automobile major turned out risky proposition later.

What is process followed for due diligence ?

  1. Engagement of due diligence agency is done by buyer/seller/investor.
  2. Due diligence agency send list of documents required at primary level. Most of document/interview requirement will come once due diligence start
  3. Due diligence is done by agency as per their standard process keeping in mind business under due diligence
  4. Due diligence report is submitted to investor/buyer who appointed agency

What are different type of due diligence carried out ?

  • Financial due diligence
  • Tax due diligence
  • Vendors due diligence
  • Information technology due diligence
  • Cyber due diligence
  • Commercial due diligence
  • Strategy due diligence
  • Operations due diligence
  • Legal due diligence
  • Environment due diligence

Where due diligence helps ?

Pre deal: Evaluation

Post deal: Assessing effects of due diligence and integration

What you should do as business if due diligence is of your company ?

Be transparent, upfront in all communication. If one try to be extra smart to get better valuation, many a times they loose deal altogether.

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