Due diligence is the process of screening a business entity prior to entering into a business arrangement, whether it’s with a client, vendor or a third party. It’s also a pillar of good governance, requiring people and groups to conduct themselves with the same care and attention as any reasonable person would in similar circumstances.

It was once the norm that when a company’s board of directors was conducting due diligence, it would involve an entire team of auditors physically going to the office and spending days perusing file after file of financial records and documents. While there are still some instances where this is required but the vast majority of companies are now conducting their due diligence in an online data room (VDR).

The following are the main types of information requested during due diligence:

A complete financial history that includes audits in the past, tax records and any financial evaluations from external providers. This will include the cash flow forecasts, balance sheets and much more.

In-depth information on the products and services that a company provides, including any ongoing research and development projects. This could include a listing of any patents, trademarks and other intellectual property.

Buyers also want to know about a company’s competitive edge that can include information like their customer base and sales pipelines as well as their market reach, and more. This can be accomplished by studying the data an organization has on these factors, and by speaking with current customers.

As the seller, you must be prepared to provide the information requested by a potential buyer. It’s not enough to hand over everything, as it’s vital to protect your intellectual properties. It’s essential to restrict access to ensure that only the most reliable partners have access to your most sensitive data.