Risk Factors to Consider in Due Diligence

18 Oct Risk Factors to Consider in Due Diligence

A merger or sale can be a major milestone for a business. However, it can also create the possibility of serious http://www.getvdrtips.net/angel-investor-due-diligence-checklist issues. These include legal liabilities, financial losses and reputational damage. Due diligence is a process that allows companies to thoroughly analyze any new venture.

The risk factors that are identified during due diligence are dependent on the type of business and the nature of the customer. For example the bank or financial institution may require a greater amount of due diligence than an online store or retail company. A company with a global footprint may require a review of laws specific to a particular country which affect its operations more than an individual domestic customer.

Businesses should be aware of the possibility that their customers will be included on sanctions lists. This is an essential check that should be done before any contract is signed into, particularly if the customer has been found guilty of engaging in illicit activities such as bribery, or fraud.

Other key factors to consider in a due diligence procedure include the reliance on any particular person or entity. For instance, a dependency on the owner-manager, or other key employees of a company could be an indicator that could lead to unexpected loss in the event that they suddenly leave the company. The amount of shares held by senior management is an important aspect to take into account. A high percentage of ownership is a positive indication, whereas low levels are a red flag sign.