The importance of carrying out due diligence
Due diligence is important to an organization. It’s necessary to carry out due diligence if you don’t want to run into troubled waters. As a matter of fact, in some cases, due diligence is an issue of law. Both parties are often required to commence due diligence before embarking on the transaction. Due diligence is […]
Due diligence is important to an organization. It’s necessary to carry out due diligence if you don’t want to run into troubled waters. As a matter of fact, in some cases, due diligence is an issue of law. Both parties are often required to commence due diligence before embarking on the transaction.
Due diligence is always a requirement of law if you are dealing with a state or federal agency. However, as a business or organization, carrying out due diligence is important too. As Sam Tilston, CEO Effect Group says, “Intelligence without diligence is a tragedy, not success.”
Buyers Perspective: Due diligence
No doubt, as a buyer proper due diligence will help you get a better deal. Firstly, it will help the buyer discover the shortcomings of the target, product, or property it plans to acquire. With this, the buyer can negotiate a lower price or better terms and conditions for their business.
The two kinds of due diligence often carried out by buyers are:
- Offensive Due Diligence: Here due diligence often reveals the failure of the target if any and it allows the buyer to negotiate lower and get a better deal. Also, this due diligence may lead to the deal not proceeding at all.
- Defensive Due Diligence: This type of due diligence may favor the seller. If the buyer is allowed thorough due diligence and no defect is found on the target, the seller may likely increase the price. Therefore, limited due diligence is favorable sometimes depending on the target property of the item sought to be bought.
Another advantage of due diligence for a buyer is that it limits the risk of a corporate transaction. Also, due diligence will let the buyer know the level of the type of insurance policy that buyer would need after purchasing the property.
Sellers perspective: Due diligence
In the same way, due diligence favors a buyer, it also helps the seller. If the seller is confident of the state of the property he intends to sell, the buyer can be granted unlimited due diligence. The advantage is that the seller can sell the property higher when the buyer discovers no defect on the property. Below are the advantages of due diligence for a seller:
- It helps the seller verify their representations and guarantees
- It makes the product attractive
- Curtails the risk of claims that may occur later
- Helps remove potential complications
Due diligence repossesses a lot of confidence in the seller if the property is in good shape.
Wrapping up
In a nutshell, due diligence favors both parties. However, the pendulum swings in favor of the buyer more. Besides, it will do the buyer well to know the state of the property being bought. Aside from that, due diligence also helps you know the genuineness of the product and whether or not the seller is the real owner of the property.
Finally, due diligence is a necessity because it provides a sort of guarantee. You can also get a company to carry out comprehensive due diligence on the company you want to carry out business with or the product you want to buy.
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