Due Diligence is a comprehensive assessment of the investment object by specialists (lawyers, financiers, auditors, and tax consultants). Based on the results of due Diligence, an expert opinion is issued.
External and internal due Diligence
With internal due Diligence, the company’s specialists carry out legal and financial analysis procedures. This type of verification has several advantages:
- Lower cost of verification.
- The ability to see business processes “from the inside.”
- The company’s experts have deep professional knowledge of the specifics of their company.
It should be noted that when conducting internal due Diligence, a company may encounter its disadvantages:
- Employees conducting due diligence procedures are distracted from solving current operational problems.
- There is a risk of a biased attitude to events and facts.
- The possibility of conducting due Diligence on your own is only with similar activity to the investee.
With external due Diligence, legal and financial analysis services are provided by appraisal and legal companies involved from outside. These include large international or regional companies or small audit and consulting firms.
The main advantage of external due Diligence is the provision of a comprehensive analysis to assess the feasibility of investments, followed by legal support, that is, a turnkey package of services.
Despite the more time-consuming (for searching, inviting, and agreeing on an audit with experts) and cost (complex services include the work of lawyers, tax consultants, auditors, and financial analysts) workflow, external due Diligence provides an independent assessment of the investment object, adequately reflects all possible tax and legal risks and formulates recommendations for their elimination.
Tax due diligence
Analysis of the real situation of the financial and economic activities of the company at the reporting date. The coverage period is three years. Compliance with the norms of the tax code is being checked in terms of the correctness and timeliness of accrual and payment of taxes and contributions, the application of benefits, filling out declarations and calculations, as well as checking the preparation of financial statements, the correctness of the annual inventory of assets and liabilities, receivables and payables, financial investments, are checked company counterparties. Based on the results of the stage, a conclusion is formed that describes possible tax risks and ways to eliminate or reduce them.
Management due diligence
Analysis of the company’s statutory documents, determination of its organizational structure, the rights of each shareholder (owner), checking the registration of the company’s share issue, payments to shareholders, the correctness of registration of transactions with shares. The stage ends with the preparation of an independent opinion.
Financial due Diligence
Analysis of the financial position and performance of the company in terms of key indicators: liquidity, financial stability, profitability, turnover, solvency; a bankruptcy forecast is made, the cost of the acquired company in the market, and the prospects for its development are determined. A conclusion is drawn up, including the analyzed indicators and coefficients, characterizing the company’s ability to generate income.
Marketing due diligence
Analysis of the competitive state and position of the company and its product in the market, prospects, and opportunities for its development is determined, and marketing risks are identified. The information received is reflected in a consolidated or separate independent conclusion.