Many types of investments are worthy of consideration by investors. However, regardless of the type of investment, it is vital for investors to consider all elements of the investment — including a risk assessment. The most effective tool in determining the reliability, quality and soundness of an investment is to use the process of financial due diligence. Click here to view Investor Financial Due Diligence Checklist.
As in the general principle of due diligence, “financial due diligence” ensures that the course of action being undertaken is wise and financially worthwhile for every party involved. Read on to learn more about the process of financial due diligence, why it is important to investors and businesses, and how a financial consultant can help.
What Is Financial Due Diligence?
When considering an investment, financial due diligence is the most important task toward making sure that the investment is sound. When performing financial due diligence, in a process very similar to an audit, every financial record, as well as any other relevant financial information to the investment, is audited and double-checked to determine if all the accounts are consistent.
By examining categories such as gross value, valuation and balance sheets, financial due diligence provides security to both the buyer and seller in any given transaction.
Although financial due diligence is generally focused on the buyer, the seller can also employ the process before moving forward.
Why Is Financial Due Diligence Important?
Evaluating the real situation of assets, their liabilities and other risks provides much-needed insight into an investment. The evaluation process is one that assists in the ability to make good investment decisions.
- For investors, financial due diligence provides the type of information that ensures the targeted investment is in the financial position that it states it is in.
- For businesses seeking funding, having a financial due diligence report in place can serve to impress potential funding sources and investors by demonstrating that the business is committed to transparency and is ready to move forward quickly.
This report assures both parties that an investment is viable, reliable and equitable, and it can assist in identifying any potential risk factors.
Other Types of Due Diligence
While financial due diligence is very important, it is not the only type of diligence tool that is available — and sometimes necessary. “Field due diligence,” for example, is a process used to measure the viability of certain investment sectors, such as renewable energy or agriculture, through the employment of sector-specific experts.
Sector experts perform evaluations, assessments and analysis of potential investments to identify important factors that are used in a decision-making process. In this area of due diligence, sector-specific experts and consultants may be needed to assess in sectors such as agriculture, clean technology, renewable energy, water, etc. Assessments can be technical, environmental and legal, and they can also be based on social impact, sustainability and feasibility.
How Can Maximpact Help Businesses, Investors and Funds?
Financial due diligence is an important task for both businesses and investors. However, financial due diligence is not an easy task, which is why getting it done by a team of experts through Maximpact Services will save you time and money.
Maximpact Services helps investors — such as funds, VCs, angle investors, accelerators, private investors and other types of funding sources, including grant-givers — by taking over the in-depth process of financial due diligence. Outsourcing the labor-intensive parts of the evaluation process for multiple investments enables each party to save time and money to focus on what each does best.
For businesses, Maximpact Services provides financial due diligence reports that will impress investors and increase your chances of fundraising success.
With access to hundreds of experts and consultants covering more than 200 sectors, all players can easily find the experts they need for evaluations, assessments and all kinds of due diligence.
Use this helpful tool and resource: Maximpact Investor Financial Due Diligence Checklist
Visit Maximpact, and find out more at: Maximpact Finance Services:Due Diligence
Still have questions? Schedule a call with a funding expert and receive expert advice, or contact Maximpact, and we will guide you in finding what you need.