Definition
Due Diligence
The investigation and verification of a business's financials, operations, and legal standing before completing an acquisition.
Definition
Due diligence is the structured process of verifying all material information about a business before closing an acquisition. Financial due diligence validates the P&L, tax returns, and management accounts. Legal due diligence reviews contracts, IP ownership, and liabilities. Operational due diligence assesses systems, staff, and key risks. A strong BAS score should always be followed by proper due diligence — the score identifies which areas to probe most deeply.
Worked Example
A buyer receives an IM showing $200,000 EBITDA. Due diligence reveals $40,000 of that came from a one-off government grant that won't repeat. Normalised EBITDA is $160,000, significantly changing the valuation.
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