If you're looking to purchase a property, acquiring a business or hiring an employee for the first time due diligence is an essential method of assessing risks and making informed choices. There are various kinds of due diligence that differ in their focus on specific numbers as well as legalities and other aspects.

Hard due diligence, on the other hand, is concerned about the data and numbers in financial statements. This may involve analysis of accounting records and the use of financial ratios, and projections of cash flows to the future. It also examines inventory, capital expenditure, and sales history. It is essential to verify the accuracy of this information by cross-referencing and verifying documents, which is sometimes done by outside experts.

Operational due-diligence involves a thorough study of a company's structure, including its management structure, legal issues, and potential growth. It analyzes the present state of a company and determines if it aligns with an acquirer's strategic goals. This kind of due diligence also considers any potential pitfalls, such as the impact a sale might have on existing employees and customers.

Legal due diligence reviews contracts, licensing, and the history of litigation to make sure that a business is adhering to the law and is risk-free. It's a good idea hire an outside lawyer or law firm(opens in new tab) to conduct this type of due diligence. This will prevent buyers from discovering details that could undermine the transaction or cause unexpected liabilities after the transaction has been completed.