What is the importance of conducting due diligence? (200 words) 5 Marks
The due diligence stage is an essential element to a successful commercial transaction. When purchasing a business, the due diligence stage allows the buyer to assess the value of the business and to verify the information pertaining to the business in order to determine whether to proceed with the purchase. The due diligence period also permits the buyer to determine if there are any barriers or risks associated with the transaction. Accordingly, the transaction is usually conditional upon the due diligence stage being completed.
The due diligence period is typically two weeks to one month in length, but can vary depending on the complexity of the transaction and can also be extended in some circumstances. Often the buyer and the seller will enter into confidentiality agreements prior to commencing the due diligence so that the seller can be certain that the information the buyer receives and reviews will be subject to confidentiality restrictions. The majority of the information for completing due diligence is obtained directly from the seller.