Due diligence is defined as “reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.” Basically, you’re required to check it out before you leap. In many cases if you don’t practice due diligence you’re libel for any negative repercussions.
Real Estate Due Diligence
In real property transaction due diligence is obtaining a title insurance before signing for property, as you want to make sure that no liens or other obligations relate to the property and there is a clear and unencumbered title. In real estate transaction title insurance is required before financing can be obtained. Perhaps you are preparing to build the entertainment venue of the decade. You bought your property, title insurance and all, but find that the property is smack dab in the middle of a flood plain, requiring extensive investment to comply with potential flooding. Of course, a trip to the building department would have revealed this, you didn’t look before taking the leap. Any major investment, in time or capital should include a due diligence investigation and report. If things go wrong, you have the legal obligation to have done due diligence and evaluated the risk. If you didn’t it erodes your standing in court.
Due Diligence Testing of Overseas Products
Numerous stories exist of toys imported from China having to be recalled because of lead content in the paint. Due diligence would demand tests to ascertain safety. If your dealings involve overseas manufacturers you have the responsibility to test the products. Standards overseas tend to fall somewhat short of US standards and safety measures. A recall is expensive and can affect your reputation. Many of the Asian products suffer from less than ideal manufacturing standards and warranty work can destroy any profit margin.
Business Due Diligence
Mergers, acquisitions and inter business partnerships all demand due diligence and risk assessment. Without a proper investigation these transactions can result in a legal and financial landmine. What does a due diligence investigation seek to find and document. It must comply with a reasonable care or legal required carefulness.
• Examination of the target merger, acquisition, privatization or partnership by the buyer.
• Reasonable investigation on material future matters.
• Investigation of current practices of process and policies.
• An evaluation of valuation and shareholder analysis if applicable.
Various auditing processes can reveal pertinent information:
• Compatibility how does it fit with the current corporate goals and operations.
• Financial determines if the potential transaction is financially feasible.
• Marketing how does the products offered compliment products already offered and is there truly a market for the new product line.
• Legal does the potential target have pending legal litigation and/or judgment that will affect the profitability of the target company and any future cooperative dealings or acquisition.
• Macro-environment includes working conditions, safety and health implementations, break areas and employee facilities. Employee compensation and perks and capability with parent company policies and procedures.
• Production are facilities sufficiently modern, in good repair and capable of projected productions.
• Management audits determine current management style, compatibility to current management and any potential alterations and replacements.
• IT, information systems will have to be integrated with current systems, security applications and IT policies and procedures.
Due Diligence Investigations & More in Greater Miami, Sunny Isles, Fort Lauderdale, Boca Raton & Miami Gardens Florida
Basically, under due diligence you have to make a reasonable effort to ensure the safety of your investment and commitment. Due diligence and risk management practices go hand in hand, and a competent private investigator can mitigate many potential problems and provide information for deliberation and risk assessment.
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