Due Duligence: Key Things to be Kept in Mind - YB Case 2024

Due Duligence: Key Things to be Kept in Mind

Due Duligence: Key Things to be Kept in Mind

The number of entrepreneurs which have become interested in conducting due diligence is increasing each year.

When an entrepreneur acquires, merges a company or, for example, when investing in securities, he must adequately protect himself and his money.

In this case, the competitiveness of the enterprise is considered, in particular some specific aspects.

Since any company tries to prevent losses or negative consequences, the due diligence process can help in minimizing the following possible risks:

  • Prejudice to the reputation and image;
  • Financial risks in existing and potential financial relationships;
  • Economic risks;
  • Legal risks.

Prejudice to the reputation and image

If the company was caught in corruption or was relevant to any illegal activity, it will inevitably lose the customer confidence, including potential, as well as its business partners. Thus, if it turns out that you are dealing with such people, it will cast a shade on your reputation too. Obtaining specific information about such a partner may cause a timely termination of the relationship, and elimination of any unintended results.

Risks in existing and potential financial relationships

Even a long-standing relationship built on a trust basis does not exclude the possibility that the partner is engaged in illegal practice. Communication and interaction with such partners can attract the attention of public services, as well as entail more serious problems. The disclosure of information about the interaction of a (potential) partner with certain persons and actual information on funds transfers can help to respond in time and take action to avoid financial consequences.

Economic risks

Pros and cons of the company may not be provided entirely accurate, rather even in a distorted form. In this case, erroneous judgments can result in too high investments. For example, if you will disclose the information about artificial turnovers in advance, the company offered for purchase may significantly fall in price, or even lose interest for the buyer.

Legal risks

Due diligence may be required by the laws of a particular jurisdiction. Therefore, before proceeding with the acquisition or merger of the company, you should consult with lawyers.

Process of due diligence

Based on the above information, it can be concluded that some person or company is being checked for financial errors, for legal violations and for hiding information from a partner.

Prompt due diligence

It is carried out in relation to the work processes of the certain company, since their effectiveness have an impact on the cost formation. The consistency between the drawn up business plan and the real capabilities of the company is determined during this expert assessment.

Tax due diligence

Since buying a company is already implied tax liabilities, an analysis of the expected actual taxes and the associated risks is especially important. If the company is still involved in tax litigation or has not completed a tax audit, this will obviously entail additional costs. Buying a company should also raise questions about cash flow, raising capital, financial structure and real profit.

Financial due diligence

It is determining the true pros and cons, and further objective analysis of the current situation and forecasting the future situation. During such a process, it is possible to check the financial position, cash flow format, identify risk areas and receive other, more important information.

Legal due diligence

It is related to the structure of the company, available subsidiaries, patent rights and intellectual property. IP disputes can greatly lower the cost of a company.

Commercial due diligence

In this case, is considered the competitiveness of the company, in particular some specific aspects. The actual turnover of the company, contacts, information on the interaction of the company with suppliers, customers and competitors, information on contracts, scope of activities and successes, information on developments and their quantity, and other data are determined during this analysis. On this basis, it is much easier to determine the true situation.

Simplified or complete due diligence process?

Simplified due diligence is implementing on the basis of registration data, and used for a formation of a preliminary opinion.

A preliminary opinion is formed during the analysis of information about the company, its VAT numbers and other relevant data. It helps to quickly identify unreliable applicants.

Complete due diligence is necessary when it comes to large international companies, or companies with a specific asset on the balance sheet.

During the company due diligence procedures, including such procedures related to the partners, a thorough analysis is carried out to identify the following indicators:

  • partners/employees associated with officials;
  • non-transparent information about the beneficiaries;
  • inconsistent balances; and
  • countries with high rates of corruption or companies in risk zones and well-known tax havens.

The information, provided by our experts, is not publicly available, it is closed in accordance with the peculiarities of the financial activities of the company. The complete due diligence process takes about 1-3 weeks.

How to conduct due diligence?

As we already noted earlier, first of all you need to ask for advice from our specialist.YB Case experts are ready to provide you with advisory services on all the above material. Also, after identifying the most important issues, we will provide you with qualified assistance in conducting due diligence in Switzerland, Luxembourg or Liechtenstein.

Our specialists are also working with such jurisdictions as: USA, Panama, United Kingdom, Seychelles, and many other countries in Europe, Asia and America.

For detailed information, please use the contacts listed below.

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