Risk Factors to Consider in Due Diligence

A merger or sale could be a major milestone for a business. However, it could open the door to serious problems. Legal liabilities, financial losses and reputational damage are all possibilities. Due diligence is a procedure which allows companies to carefully examine any new business.

Due diligence is a method that helps identify risk factors. These risks are based on the nature and type of the business. A bank or financial institution for instance, could require a greater amount of due diligence than retailers or e-commerce businesses. A company with a global presence may need to review country-specific laws which impact its operations more than an individual domestic customer.

A key risk factor that companies must look out for is whether the client appears on a list of sanctions. This is a crucial check that should be done before any contract is signed into, particularly in the event that the client has been identified as having engaged in illegal activities like bribery and fraud.

Other crucial aspects to consider in a due More Help diligence process include the dependence on particular individuals or entities. A company’s dependence on its owners or key employees could be a red flag that could result in unexpected losses if an employee is suddenly dismissed from the company. Another factor to consider is the amount of share ownership owned by the senior management. A high percentage of ownership is a positive sign, while a low level is a red flag.