Due diligence occurs where a buyer conducts investigations on the business it wishes to acquire. This process is important, particularly when it comes to evaluating the worth of a business. It also provides confirmation for the buyer that the business is of the status, to which the seller has represented it to be.
Due diligence is done by creating a checklist of all the information pertaining to the business. It gives the buyer the opportunity to examine every aspect of the business from the financial statements, salaries and sales records to the market history and reputation of the business.
The process of due diligence provides a form of security for the buyer before committing to buy another business. It also places a responsibility on the seller to ensure they provide correct information prior to the sale. Where a seller does make any false statements or partial disclosures, this will amount to misrepresentation and the buyer may have the right to rescind the agreement and/or claim damages.
Â This article was written by Gcobisa Bonani a work experience student at SolentÂ University.