What is Due Diligence and how does it apply to your company?

Due Diligence is a detailed process of analysis and evaluation of information and documents from different sectors within the same company. This is a fundamental procedure for closing new deals, being a way for managers, investors, and other companies to assess the financial risks of a new partnership.

Due Diligence means prior diligence and aims to analyze and mitigate risks of possible partnerships between companies.

Likewise, any type of acquisition or merger in business is a risky operation. After all, linking one company's name to another can be a double-edged sword.

It is through the due diligence process that the entire background of the company will be analyzed. In an acquisition or merger process, customers, partners, and suppliers will be inherited, but legal and financial problems may also be inherited.

Through Due Diligence conducted correctly and with attention to detail, it is possible to analyze business risks and find threats in advance, giving them the chance to treat them correctly and even eliminate them.

During the due diligence, the accounting, tax, and financial aspects of the company with which the business is intended to be closed will be analyzed. The investigation is conducted in a broad and complete manner, evaluating the entire history of all parties involved. It is essential that the data collected is relevant so that managers can invest in the new business safely.

In addition to ensuring future success, it can also be a helping hand during the negotiation process. After due diligence, it is possible to negotiate amounts and guarantees.

The due diligence process is essential to a functioning compliance program.

the benefits of performing Due Diligence.

Technology has directly affected the business world. Concerns when closing a new deal have changed and market competition is increasing.

Despite what seems like cons, there are pros to these changes. After all, companies need to be up to date with their legal and financial processes, with no room for errors.

The previous investigation will allow the team of specialists to understand and fully understand the organization interested in getting key factors such as:

· market position.

· identification of fraud and errors during the operation.

· future projections.

· scratches.

· accounting, fiscal and financial health.

· competition.

With this information in hand, after the investigation process, the company can assess the potential risks of the business opportunity and understand the real viability of the business.

Another benefit of Due Diligence is the mapping, identification, and treatment of legal risks.

Some of these risks can be fatal for the organization, however, with the due diligence it is possible to foresee risks and adopt processes for the prevention and resolution of problems.

There are many external and internal parts that are analyzed during the due diligence process, this can make the process seem confusing and even a maze with no way out. However, this is not even close to the real scenario.

The Due Diligence process is, as a rule, conducted by specialized consulting professionals who will conduct the analysis.

The expertise of the employees involved in the due diligence process will depend on the final goal.

It may involve professionals from different areas, such as lawyers, accountants, administrators, or economists who will work together to analyze the data.

If the company has a multidisciplinary team, it is possible to internalize the process with experienced employees.

There are several goals that can be achieved through careful diligence. The collected data can be useful for different areas, such as:

Financial Due Diligence.

Due Diligence for compliance.

Due Diligence for Outsourcing.

Accounting Due Diligence will consider the entire financial history of the company, accounting statements, equity, assets and liabilities, profit projection, etc.

This comprehensive analysis shows whether the analyzed company commits any of the most common frauds or has some type of accounting problem.

As previously mentioned, Due Diligence ensures the effectiveness of the compliance program.

This is because even passive involvement in fraud or irregularities can put the company's reputation at stake, negatively affecting it in even fatal ways.

With diligence, it is possible to go over the environmental and social involvement of the organization being analyzed, in addition to political involvement and with public bodies – points that always require special attention.

It is not uncommon for organizations to deal with outsourced productions, giving a false sense of disclaimer when it comes to these partners. However, that is not how it works in practice.

The actions of third parties, which are connected to the process, can directly influence the company under analysis. It may even oversee the actions of commercial partners.

Therefore, it is extremely important that all parties involved in the production process – outsourced or not – are investigated in advance.

Some important points of Due Diligence can save the company interest in mergers and acquisitions; are they:

Do those involved act following the labor laws in force in the country?

Are the properties regularized?

Do those involved act in accordance with the requirements of the municipality in which they operate?

The third-party investigation process is not just about these three questions. They are a series of crucial questions that must be answered before making a decision.

In addition to these points, other aspects will also be considered, such as labor; Does the analyzed company value its team? Does it follow the laws in force in the country? Accumulate labor processes?

The Environmental, Intellectual Property, Legal, Real Estate, Integrity, and other important points for the health and growth of any organization will also be analyzed.

Due Diligence can be conducted at any time, even when there are no expansion plans, to ensure the health of the organization, in the form of an internal audit, providing economic management with important data.

However, before operations such as mergers, acquisitions, divisions, integration, partnerships, or any type of movement of large amounts; it is essential that the due diligence be conducted with caution.