The term "due diligence" refers to the act of thoroughly researching something before taking action. It is used in various business dealings, each with its own set of directives for conducting due diligence research and then summarizing the findings in a report format. The size and scope of such a report will vary based on the document's intent and the subject matter being investigated.
The essence of the Due Diligence report
Although due diligence reports can follow a variety of formats, typically, they have the following elements in common:
• Statement of what is being studied, researched or proposed.
• Background and supporting documentation on the proposal.
• Studies or findings, statistics, and supporting information such as surveys, specialist consultants, appointments, inspections, etc.
• An overview of the strengths, weaknesses, opportunities, and threats (SWOT) associated with the proposal.
Compiling the report
The format of a due diligence report will depend on its intended audience. For example, an investor and buyer conducting due diligence before purchasing real estate might summarize findings related to zoning and land use, regulatory and compliance issues; inspection reports; and property assessment and taxes. On the other hand, a developer or development manager proposing the launch of a new project might put together a report that details market research, anticipated construction costs, as well as investment and earning projections.
Importance of Due Diligence
Failure to develop a due diligence report means that you dive blindly into a business venture without fully understanding what you're getting yourself or your company into. Some lenders may even require a due diligence report as part of a business plan to decide whether or not to issue a corporate loan. The act of researching a due diligence report places a business in a position of power, giving it the ability to negotiate and act from a position of knowledge.
