Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care. It is a systematic way to analyze and mitigate risk from a business or investment decision. Due diligence can be a legal obligation, but the term more commonly applies to voluntary investigations. It may also offer a defense against legal action.
Due diligence involves examining a companys numbers, comparing the numbers over time, and benchmarking them against competitors. It is applied in many other contexts, such as conducting a background check on a potential employee or reading product reviews. Due diligence can also refer to the period of time between an accepted offer and closing in real estate, during which the buyer and seller agree to allow the buyer to inspect the property before closing the sale.
In summary, due diligence is a process of investigation or exercise of care that is normally expected to be taken before entering into an agreement or contract with another party or an act with a certain standard of care. It is a systematic way to analyze and mitigate risk from a business or investment decision, and it can be applied in many different contexts.
