Due diligence is the process of investigation and analysis a business or person conducts prior to entering into any transaction, like investing in a business. The process is generally mandated by law if a company wants to purchase other businesses or assets, as well as by brokers who wish to ensure that a customer is fully informed about the specifics of a transaction prior to committing to it.

Due diligence is the process that investors usually selecting ideal virtual rooms follow when considering investments which could be a corporate acquisition, merger or divestiture. Due diligence can uncover undiscovered liabilities, like legal disputes and outstanding debts that can only be disclosed after the fact. This could affect the decision on whether to close a transaction.

Due diligence can be classified into three types: commercial, financial, and tax due diligence. Commercial due diligence concentrates on a company’s supply chain, its market analysis, and its growth prospects. A financial due diligence investigation examines a company’s financial records to ensure that there are no accounting irregularities and that the company is on sound financial footing. Tax due diligence studies the tax exposure of a company and also identifies any outstanding tax.

Most of the time due diligence is limited to a time frame that is negotiated, called the due diligence period, during which a buyer can evaluate the potential purchase and ask questions. Depending on the nature of deal, buyers may require the assistance of a specialist to conduct this study. For example environmental due diligence may consist of a list of all environmental permits and licenses that the company has, whereas financial due diligence may involve a review by certified public accountants.