A company’s acquisition through a sale or merger can be a significant event for any business. However, it can open the door to serious problems. These include legal liabilities as well as financial losses and reputational damage. As a result, it is crucial that businesses be sure to examine any business venture that is new through an extensive due diligence process.

Due diligence is a process that identifies risk factors. These risks are based on the type and nature of the business. A financial institution or bank, for example, may require a higher level of due diligence than retailers or ecommerce businesses. A company that has a global presence might require a review of country-specific laws that affect its operations more than a single domestic customer.

A major risk factor companies must be aware of is whether the client appears on sanctions lists. This is an essential investigation that should be carried out prior to entering into any contract into, particularly when the customer has been identified as having engaged in illegal activities like bribery and fraud.

In a due diligence process, it is important to consider the amount of dependence on specific individuals or organizations. For instance, a dependency on the owner-manager or key employees of a business might be an indication of a problem that could result in a sudden loss should they suddenly leave the company. The amount of shares held by the senior management team is also something to be considered. A high percentage is positive, while any low percentage is a red flag.

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