1. information asymmetry

Information asymmetry refers to the imbalance and opacity of information between the consulting agency and the target enterprise or project in the process of commercial due diligence consulting, which leads to the consulting agency's inability to obtain complete, accurate and timely information, thus affecting the quality and effectiveness of consulting. The reasons for information asymmetry may be the following:

The target enterprise or project deliberately conceals or distorts information in order to conceal its adverse aspects or to increase its valuation and bargaining power.

The information provided by the target enterprise or project is not standardized or inconsistent due to management irregularities or inconsistencies, such as financial statements that do not conform to international accounting standards, contract formats are not uniform, document numbers do not match, etc., thus creating difficulties for the consulting body to understand and compare.

The target enterprise or project denies or restricts the consulting agency's access to certain key information, such as core technology, strategic planning, important customers and partners, etc., due to confidentiality or sensitivity, so that the consulting agency cannot fully assess its business value and potential.

Due to the constraints of time, cost, manpower and other resources, the consulting organization is unable to collect, verify and analyze all the information of the target enterprise or project, resulting in incomplete and inaccurate information.

In order to deal with the problem of information asymmetry, the advisory body can adopt the following strategies and methods:

Before signing the consulting contract, fully communicate and negotiate with the target enterprise or project, clarify the purpose, scope, content, method, standard, time, cost, etc. of the consultation, as well as the rights and obligations of both parties, and minimize the uncertainty and inconsistency of information.

Before consulting work, formulate a detailed information collection plan, determine the source, type, method, frequency, person in charge, etc. of the information, as well as the verification and sorting methods of the information to ensure the validity and reliability of the information.

During the consulting work, multi-channel, multi-angle, multi-method information collection methods, such as interviews, research, observation, field visits, data analysis, etc., as well as the use of third-party professional services, such as market research institutions, industry experts, lawyers, accountants, etc., to make up for the lack of information and imbalance.

After consulting work, summarize, organize, analyze and evaluate the collected information, and conduct feedback, communication and discussion with customers to eliminate information ambiguity and misunderstanding, and resolve information contradictions and conflicts.

2. market forecast

Market forecasting refers to the prediction and evaluation of the market environment, development trends, growth potential, etc. of the target enterprise or project in a commercial due diligence consultation to help clients judge their business prospects and return on investment. The difficulty of market forecasting lies in:

The complexity and variability of the market environment leads to the uncertainty and instability of market forecasts, such as policy changes, technological innovation, consumer demand, competitive landscape, etc., which may have a significant impact and change on the market.

The lack and inaccuracy of market data leads to inadequate and unreliable market forecasts, such as data for certain emerging markets or market segments that may be imperfect or not publicly available, or there may be data lags, distortions, biases, etc.

The limitations and inapplicability of market forecasting methods and models lead to unreasonable and inaccurate market forecasts, such as some traditional market forecasting methods and models may not be able to adapt to certain special market characteristics and laws, or there are some unreasonable assumptions and parameters.

In order to deal with the difficulties of market forecasting, consultants can adopt the following strategies and methods:

Before making market forecasts, fully understand and analyze the market in which the target enterprise or project is located, and clarify the definition, division, structure, scale, growth rate, profit margin, drivers, influencing factors, etc. of the market, as well as the history, current situation and future development and change trends of the market.

During market forecasting, a combination of multiple data sources, multiple forecasting methods and multiple forecasting scenarios is used to improve the comprehensiveness and flexibility of market forecasting, such as using official data, industry data, third-party data, expert opinions, etc., and using quantitative methods, qualitative methods, analogy methods, scenario analysis methods, etc., and considering the optimal scenario, the worst scenario, the most likely scenario, etc.

After making market forecasts, the forecast results are tested and evaluated, as well as shared and discussed with customers to improve the rationality and accuracy of market forecasts, such as the use of sensitivity analysis, hypothesis testing, error analysis, etc., as well as communicating with customers about the assumptions, methods, results, significance, risks, etc.

3. competition analysis

Competitive analysis refers to the analysis and evaluation of the type, number, scale, strengths, weaknesses, strategies, behaviors, etc. of competitors faced by the target enterprise or project in commercial due diligence consulting to help customers understand their competitive position and competitiveness in the market. The difficulty of competitive analysis lies in:

Competitor identification and selection, resulting in incomplete and unfocused competitive analysis, such as some potential competitors or alternatives may be overlooked or underestimated, or some unrelated competitors or products may be over-focused or overvalued.

The acquisition and analysis of competitors' information leads to inaccurate and in-depth competition analysis. For example, the information of some competitors may be difficult to obtain or unreliable, or there are problems such as lag, distortion and deviation of information, or the information of some competitors may be too complex or vague, or there are problems such as diversity, inconsistency and variability of information.

Competitor evaluation and comparison, resulting in the competition analysis is not objective and ineffective, such as the evaluation and comparison of certain competitors may be subject to subjective bias or emotional influence, or the existence of evaluation and comparison criteria, methods, indicators, weights, etc. unreasonable or inconsistent.

To address the challenges of competitive analysis, consultants can adopt the following strategies and approaches:

Before conducting a competitive analysis, fully understand and analyze the competitive environment of the target enterprise or project, clarify the definition, level, scope, dimensions, elements, etc. of competition, as well as the history, current situation and future development and change trends of competition.

During the competition analysis, a variety of competitor identification and selection methods are used to improve the integrity and focus of competition analysis, such as market share, growth rate, profit margin, product similarity, customer overlap, channel coverage, technology dependence, etc., as well as the use of Porter's five forces model, value chain analysis, strategic group analysis, blue ocean strategy, etc.

During the competitive analysis, a variety of competitor information acquisition and analysis methods are used to improve the accuracy and depth of competitive analysis, such as the use of public information, non-public information, direct information, indirect information, quantitative information, qualitative information, etc., and the use of SWOT analysis, PEST analysis, VRIO analysis, core competitiveness analysis, value proposition analysis, etc.

After the competition analysis, a variety of competitor evaluation and comparison methods are used to improve the objectivity and effectiveness of the competition analysis, such as the use of benchmark analysis, difference analysis, advantages and disadvantages analysis, dominant strategy analysis, competition map analysis, competitive advantage analysis, etc., and communicate with customers about the results, significance, suggestions, risks, etc. of the evaluation and comparison.

4. Business Model Assessment

Business model assessment refers to the analysis and evaluation of the business model of the target enterprise or project, that is, the logic and mechanism of how it creates, transmits and acquires value, in order to help customers understand its commercial feasibility and sustainability. The difficulty of business model evaluation lies in:

The complexity and diversity of business models lead to inconsistent and non-standard business model evaluation. For example, different industries, fields, markets, enterprises or projects may have different business models, or the same business model may have different implementation methods and effects.

The innovative and transformative nature of business models leads to instability and unpredictability in the evaluation of business models. For example, some emerging business models or innovative business models may break the rules and paradigms of traditional business models, or some business models may be constantly adjusted and optimized with the changes of the market and the needs of customers.

The evaluation and comparison of business models leads to the non-objective and ineffective evaluation of business models. For example, the evaluation and comparison of certain business models may be affected by subjective bias or emotion, or there are unreasonable or inconsistent evaluation and comparison standards, methods, indicators, weights, etc.

To address the challenges of business model assessment, consultants can adopt the following strategies and approaches:

Before evaluating the business model, fully understand and analyze the business model of the target enterprise or project, clarify the definition, elements, types, characteristics, advantages, disadvantages, applicability, etc. of the business model, as well as the history, current situation and future development and change trends of the business model.

During the business model evaluation, a variety of business model analysis and evaluation methods are used to improve the unity and standardization of business model evaluation, such as the use of business model canvas, business model roulette, business model scorecard, business model test, etc., and the use of revenue model analysis, cost model analysis, profit model analysis, value model analysis, etc.

During the business model evaluation, a variety of business model innovation and change methods are used to improve the stability and predictability of business model evaluation, such as using four models of business model innovation, five paths of business model innovation, eight methods of business model innovation, and using minimum feasible products, agile development, lean entrepreneurship, etc.

After the business model evaluation, a variety of business model comparison and selection methods are used to improve the objectivity and effectiveness of business model evaluation, such as the use of four business model evaluation criteria, five business model selection principles, and business Model six selection tools, etc., and communicate with customers about the results, significance, suggestions, and risks of comparison and selection.

5. risk identification

Risk identification refers to the identification and analysis of uncertain events or situations faced by the target enterprise or project that may lead to loss or failure in commercial due diligence consulting to help clients understand their risk level and risk impact. The difficulty of risk identification lies in:

The source and type of risk, resulting in incomplete and unfocused risk identification, such as certain internal or external risks that may be overlooked or underestimated, or certain unrelated or minor risks that may be over-focused or overvalued.

The probability and impact of risks lead to inaccurate and in-depth risk identification. For example, the probability or impact degree of some risks may be difficult to estimate or unreliable, or there may be problems such as lag, distortion, and deviation of probability or impact, or the probability or impact of some risks may be too complex or vague, or there may be problems such as diversity, inconsistency, and variability of probability or impact.

Risk response and control, resulting in risk identification is not objective and ineffective, such as the response and control of certain risks may be affected by subjective bias or emotion, or there are unreasonable or inconsistent standards, methods, indicators, weights, etc. of response and control.

In order to address the difficulties of risk identification, consultants can adopt the following strategies and methods:

Before risk identification, the risk environment of the target enterprise or project is fully understood and analyzed, and the definition, source, type, characteristics, impact, applicability, etc. of the risk are clarified, as well as the history, current situation and future development and change trends of the risk.

During risk identification, a variety of risk identification and selection methods are used to improve the integrity and focus of risk identification, such as the use of risk lists, risk matrices, risk maps, risk identification tools, etc., as well as the use of four methods of risk identification, five techniques of risk identification, and six steps of risk identification.

During risk identification, a variety of risk probability and impact assessment methods are used to improve the accuracy and depth of risk identification, such as the use of risk probability distribution, risk impact matrix, risk sensitivity analysis, risk expectation analysis, etc., as well as the use of risk probability and impact assessment. Four methods, five techniques of risk probability and impact assessment, six steps of risk probability and impact assessment, etc.

After risk identification, a variety of risk response and control methods are adopted to improve the objectivity and effectiveness of risk identification, such as the use of risk response strategies, risk control plans, risk control tools, etc., as well as the use of four risk response and control strategies, five risk response and control technologies, six risk response and control steps, etc, and communicate with customers about the results, significance, suggestions, risks, etc. of response and control.

Conclusion

Commercial due diligence consulting is a professional, complex, and important consulting service. Its purpose is to provide customers with comprehensive, in-depth, and objective business analysis and evaluation to help customers make informed decisions. There are many errors and pitfalls in business due diligence consulting that can lead to failure or loss, such as information asymmetry, market forecasting, competitive analysis, business model assessment and risk identification. In order to avoid these mistakes and pitfalls, consulting agencies need to adopt appropriate strategies and methods to improve the efficiency and quality of commercial due diligence consulting, so as to create greater value for customers.