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Due diligence is the process of vetting a business entity before entering into a business arrangement that involves vendors, clients, or third party. It is also a pillar of good governance. It demands that individuals and groups perform the same actions as any reasonable person under similar circumstances.

In the past due diligence was carried out by the board of directors, who would invite a team of auditors to spend days going through the financial records and other information. There are still cases where this is required, but the majority of companies conduct their due diligence with a virtual dataroom (VDR).

The following are the main types of information needed during due diligence:

A complete financial history, including previous audits, tax records and any financial evaluations from external sources. This includes the cash flow forecasts, balance sheets, and much more.

In-depth information on the products and services that a company offers, including any ongoing R&D projects. This can include a listing of patents, trademarks, and other intellectual property.

Buyers also want to know about the competitive advantages of a business, which can include details such as their customer base and sales pipelines as well as their market reach, and more. This can be accomplished by analysing the data the company has regarding these aspects, as well as by contacting current customers.

As a seller, it is your responsibility to be able and willing provide the information requested by an interested buyer. However it’s not an issue of just giving everything away, because it’s crucial to protect your intellectual property. This is why it’s generally recommended to set up access controls to ensure that only the most trusted partners have access your most sensitive information.

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