In contents of the business transaction, Due Diligence (DD) is a term used for an investigation or audit of a potential business that a purchaser is looking to invest in.
Due diligence serves to confirm to a purchaser all material facts in regards to a business. Due Diligence is always done before entering in the agreement for the purchase of the business. Its purpose is to prevent unnecessary harm to all parties involved in the transaction, especially the purchaser.
The facts verified during DD process will vary for different types of businesses. The most common areas of concern are financial, legal and compliance. It is common to use specialist outside adviser for each of specific areas of due diligence.
The cost and timing of DD will depend on the complexity and size of the business being investigated. If any anomalies or undisclosed facts are discovered through the DD process, the purchaser will ether attempt to re-negotiate the price or decide not to proceed with the business purchase.