Due Diligence is a process of making sure you understand how the business you consider is doing. The need for due diligence consulting services may come from several reasons:
- You are looking for opportunities to enter a new market by making an acquisition of an existing company
- You consider starting a new business at an existing market
- You are looking for any emerging market opportunities
- You are planning to acquire an existing company which will perform as a part of your business group
Due Diligence will help you make the best decision about investment opportunities based on comprehensive understanding of the target company and the business environment in which it operates.
Due Diligence may test different aspects of the target company such as marketing, strategic positioning, finances, management, expansion opportunities, current and potential issues, etc. But regardless of the aspects under due diligence considerations, it is all about estimation of the target’s abilities to successfully perform and develop in the future.
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Commercial Due Diligence (CDD)
Commercial Due Diligence is all about understanding customers and markets. Therefore commercial due diligence is the process that investigates the target’s future abilities to sustain or expand its sales in the changing market environment in which the company operates. It other words CDD reduces risk in acquisition by terminating the gap in the investor’s knowledge about the target company and its business environment to make the best deal.
The aim of CDD is to assess three areas that will allow understanding how the target company will perform in the future as a standalone business or the one under integration. These 3 areas include:
- Competitive position
Commercial due diligence can be used not only in investigations of acquisition opportunities. CDD can be used in Joint Ventures and in recovery situation, which is currently demanded in the economic situation in Ukraine, for instance. Commercial due diligence can be also useful in any business situation that requires understanding of market trends, product attractiveness, ability to compete and management’s capability to maintain effective operations.
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Financial Due Diligence (FDD)
Financial due diligence involves detailed analysis of accounting as well as other business issues of a target company. Besides the profound analysis of the provided data, financial due diligence is supported by the interviews with the top management. The aim of financial due diligence is to look behind the financial information provided by the target company and help the buyer obtain an understanding about the profitability of the target company. This understanding will serve as the basis for forecasting future sales and for the further valuation of the company.
The reasons for ordering financial due diligence can be the following:
- Assessment of the financial numbers on which the target offer is based
- Identify deal breakers such as overestimation of assets, underestimation of liabilities, adequacy of provisions, potential costs, etc.
- Giving confidence in the target’s performance, and therefore future profits
- Decrease acquisition costs
The approach applied in financial due diligence is different from that used in audit. The purpose of financial due diligence is to explain why the numbers are what they are, - not just to put them to appropriate standards. The financial due diligence investigator asks questions and thoroughly examines the provided information until receiving a satisfactory answers to understand the essence of the accounts and how their influence the target’s profitability.
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Read Comparison of Commercial & Financial Due Diligences >>
Startup Due Diligence
If you like a certain business idea or you are close to invest in a new project, be sure to take a closer, methodical look at such an investment opportunity. Startups or new business projects face tougher challenges than operating businesses. They lack history of sales and real customers. There is a high level of uncertainty about everything. It at least requires an investigation or assessment of the idea how new business will be using resources to create and maintain its competitive advantage and transform it into sales. It is also desirable to question how the startup will meet market challenges and develop in the future.
The startup due diligence done by Suomin Consulting includes the analysis and assessment of the following areas:
- Business Strategy
- Management & Personnel
- Financials (Financial Modeling can be included)
- Proprietary Rights
- References and Contacts
About 90% of startups fail within the first one or two years! Regardless of whether it is your business idea or someone else’s you are going to fund, be sure to maintain objectivity in your investment decisions – take proactive actions and reach sufficient degree of prudence and caution by ordering startup due diligence at Suomin Consulting.
If you have any questions about our due diligence services, please, contact us any time:
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