What Happens During a Due Diligence Investigation?

Did you know that when it comes to business sales and M&A, 70% to 90% fail, and a lot fail during a due diligence investigation? With 50% of business deals failing, this shows that many businesses aren’t prepared for negotiations with buyers. Last-minute demands are often the culprit of this.

However, the main issue is when things arise that the buyer wasn’t aware of during the investigation. To avoid the potential of wasting time or being taken by surprise by certain things, keep reading to find out what happens during these instigations.

What Does a Due Diligence Investigator Specifically Help With?

A due diligence investigation involves investigating a person or a business before a contract is signed. The best way to look at it is as a legal obligation.

The investigator will review things such as financial circumstances associated with a person or business. The fiscal and legal strictures of your business will also be investigated.

This will include relevant document reviews such as tax returns and loss statements as well. A professional investigation focuses on fact-finding. Overall, the concept of these types of investigations is to examine all possible liabilities that could affect business decisions-making.

Understanding the Length of the Process

When working with a due diligence investigator, it doesn’t matter if the investigation starts before or after the contract. In some cases, the investigation process can start before you are obligated to the contract.

It can also start directly after the drafted contract is executed. The amount of time the investigation will take will depend on things like the size and complexity of your company.

For due diligence in commercial real estate, for example, the process can last between 30 and 60 days. However, in a lot of cases, the process could take significantly less time.

Most of the time, the process won’t exceed 12 weeks. However, this can vary. Businesses will also only have a certain amount of time to disclose certain information at the start of the investigation.

When Does a Due Diligence Investigation Occur?

A due diligence investigation happens before a proposed contract is submitted to complete a transaction. This examination requires all financial records to be reviewed, and this is the first step in the process.

To start, the business will have to compile and prepare all necessary documents. Bidders involved with a contract will then review each line item of a company’s records. The purpose is to assess all chances of risk before anything becomes final.

Overall, it’s an avoidance mechanism. This process helps buyers avoid potential harm to their investment(s) and their chance of incurring losses. 

What You Can Expect During the Process

The due diligence investigation process is necessary for most business contracts. The process helps to enhance the security of business deals and protects investments. It also ensures third-party compliance.

If you want to eliminate risk to your investment portfolio or your business, get in touch with Najar Investigations today for a quote.