What is due diligence?

It's likely that you've often heard the term due diligence referred to during your time in business, but do you know what it actually means? There are different types of due diligence, as it can refer to commercial, legal or financial activities. It's extremely important to carry out due diligence on a range of common business activities, as not doing the research could cost your company huge amounts of money.

 

Types of due diligence:

Legal 

which is where investigations are conducted to verify that transactions have an acceptable legal basis. If you are considering buying into a business, for example, you would need to ensure that the company holds its claimed intellectual property rights, in order to ensure future success. You should conduct legal due diligence prior to entering into any contracts or loans, before buying property, and prior to taking employment.

Commercial

This should be carried out before conducting any major business transactions with new clients or buying into a business. You should be double checking that any business plan can stand up to scrutiny, so this could entail contact with customers or competitor analysis.

Financial

You would conduct financial due diligence prior to making large business transactions or purchasing a new business. You should look at cash flow, earnings, assets, liabilities, management and debt.

Due diligence in your business

When it comes to your own business, your due diligence needs to extend to virtually all areas of the company. You should be completely aware of any adverse implications that could be caused due to intellectual property legislation and the IT systems you utilise on a daily basis. It is important to ensure that your financial records are accurate and provide the correct reflection of your business. Due diligence in your book keeping, payroll, accounting and tax affairs is critical, as you can incur hefty fines from government bodies if your business affairs are not maintained in a precise manner.

We are an accountancy and tax advisory practice with offices in Seaford and Uckfield and provide financial services across the entire Sussex region. Get in touch for information on ways we can help ensure your business accounts are maintained accurately.

If you are interested in discussing if these and other options please get in touch with our managing partner Melanie Richardson

Melanie Richardson - Managing Partner

Email: melanier@swindellsaccounting.co.uk

Tel: 01825 763 366