ANSWERS: 1
  • People are often told to do their due diligence before buying anything risky, but this term can confuse people because there is no specific set of standards or regulations for performing due diligence.

    Identification

    "Due diligence" means the action of ensuring that a transaction is as it seems, basically a survey of any acquisition, according to Investopedia. In business, for example, Company A taking over Company B would perform due diligence to find out all of Company B's debt obligations and employee agreements.

    Considerations

    Charles Mills Consulting notes that due diligence on software companies requires extra work due to intellectual property concerns. Typical due diligence for these acquisitions include whether the software company has adequate legal rights to their software code and if the software has lasting power in the market.

    Misconceptions

    The seller and buyer in a transaction should perform due diligence, reports Charles Mills Consulting. Due diligence for the seller includes investigating whether the buyer can afford the purchase and public perception in cases of company takeovers.

    Fun Fact

    In 2008, Seattle software start-up Entellium raised $50 million from investors based in part on inflated revenue, which due diligence could have prevented, according to TechDirt.

    Potential

    Jim Kendall of The Daily Herald outside Chicago reported that due diligence will be even more important in recession times, even for older companies. Once-dependable suppliers might go out of business and leave you without a product to sell, and new customers could have credit problems.

    Source:

    Investopedia

    Charles Mills Consulting

    TechDirt; Greed vs. Due Diligence: Another Case Of Startup Fraud?; Mike Masnick; 2009

    Resource:

    The Daily Herald; Due Diligence May Be Key to Your Business' Recovery; Jim Kendall; 2009

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