1. what is commercial due diligence

Business due diligence, English for Commercial Due Diligence, referred to as CDD, refers to the business investment, mergers and acquisitions, cooperation and other major decisions, the target enterprise or project in all aspects of a comprehensive, in-depth, systematic investigation and analysis, in order to assess its value, risk and potential, to provide a basis for investment decisions and recommendations process. The main contents of commercial due diligence include:

Basic information about the target enterprise or project, such as history, organizational structure, shareholding structure, legal compliance, financial status, human resources, assets and liabilities, etc;

The core business of the target enterprise or project, such as the characteristics, advantages, market share, customer group, channel model, profit model, cost structure, technology level, innovation ability, etc. of the product or service;

The industry environment of the target enterprise or project, such as industry scale, growth rate, competition pattern, market demand, policies and regulations, industry trends, opportunities and challenges;

The future development prospects of the target enterprise or project, such as development strategy, objectives, plans, forecasts, risk factors, growth potential, return on investment, etc.

The results of commercial due diligence are usually presented in the form of a due diligence report, which is a comprehensive evaluation and recommendation of the target enterprise or project and is an important basis and reference for investors to make investment decisions. The structure and content of a due diligence report will vary depending on the project and needs, but generally includes the following sections:

Preface, introducing the background, purpose, scope, method, hypothesis, limitation and structure of the due diligence;

[Description]:, summarizing the main findings, conclusions and recommendations of the due diligence;

[Contents]: According to the scope and content of due diligence, the process, data, analysis and evaluation of due diligence are elaborated in chapters;

Appendix, which provides relevant information, data and evidence used in the due diligence process.

Why do 2. do business?

The importance of commercial due diligence is self-evident, it can help investors achieve the following purposes:

Confirm the authenticity and legality of the target enterprise or project, and avoid being cheated or illegal;

Assess the value and risk of the target enterprise or project and determine reasonable investment prices and terms;

Understand the advantages and disadvantages of the target enterprise or project, and formulate effective investment strategies and programs;

Find the potential problems and risks of the target enterprise or project, and propose improvement measures and risk prevention plans;

Compare the relative attractiveness of the target business or project with other investment opportunities to optimize the portfolio and resource allocation.

Through commercial due diligence, investors can improve the success rate and rate of return of investment, protect the legitimate rights and interests of investors, and enhance their confidence and decision-making ability.

How 3. do business due diligence

The commercial due diligence process generally includes the development of an investigation plan, the collection and review of information, the conduct of on-site investigations and interviews, the drafting of due diligence reports, the conduct of internal reviews, the issuance of due diligence opinions and other stages. The main contents and considerations of these phases are described below.

3.1 development of survey plan

Developing a survey plan is the first and very important step in business due diligence. The survey plan refers to the determination of the type, source, method and time of the information and data to be investigated, as well as the allocation of personnel and resources for the investigation, according to the purpose and scope of the due diligence. The main purpose of the survey plan is to ensure the efficiency and quality of due diligence, avoid omissions or duplication of work, save time and cost, and improve the pertinence and systematicness of the survey. The main steps in developing a survey plan include:

Clarify the purpose and scope of due diligence and determine the types of information and data that need to be investigated, such as financial, legal, market, technical, management, etc;

Determine the sources of information and data, such as internal information of the target enterprise or project, external information, third-party institutions, expert advice, etc;

Determine how to collect information and data, such as written information, web search, site survey, interview, questionnaire, sample test, etc;

Determine the collection time of information and data, such as the start time of the adjustment, the end time, the timing of each stage, etc;

Allocate personnel and resources for the investigation, such as determining the person in charge of the investigation, participants, facilitators, consultants, etc., and allocate the required funds, equipment, space, etc.

When developing a survey plan, the following points should be noted:

The investigation plan should be formulated flexibly according to the specific situation and needs of the due diligence, and should not be limited to fixed models and standards, but should maintain a certain degree of logic and integrity;

The investigation plan shall be made before the start of the due diligence, and adjusted and updated in time according to the actual situation during the due diligence process to adapt to the changes and developments of the due diligence;

The investigation plan shall communicate and coordinate with the relevant parties of the target enterprise or project, obtain their support and cooperation, and minimize unnecessary obstacles and interference;

The investigation plan should maintain a certain degree of confidentiality to avoid disclosing sensitive information or affecting the normal operation of the target enterprise or project.

3.2 collection and review of data

Collecting and reviewing data refers to the preliminary screening, sorting, verification and analysis of the collected information and data to check its authenticity, accuracy, completeness and relevance, eliminate invalid or wrong data, and provide a reliable basis for subsequent investigation and analysis. The main purpose of collecting and reviewing data is to ensure the quality and effectiveness of due diligence, to avoid errors or failures in due diligence due to data problems, and to improve the reliability and validity of due diligence. The main steps for collecting and reviewing data include:

Screening data, according to the purpose and scope of the due diligence, select the data related to the due diligence, and eliminate the data unrelated to the due diligence;

Organize the data, according to the content and structure of the due diligence, archive and sort the data according to a certain classification and order, so as to facilitate access and use;

Verify the data, verify and confirm the source, timeliness, authenticity, accuracy and completeness of the data according to the standards and requirements of due diligence, and find and correct the errors or contradictions in the data;

Analyze the data, according to the methods and techniques of due diligence, sort out, compare, summarize and summarize the data, extract the key information and data of the data, and provide reference and basis for the follow-up investigation and analysis.

When collecting and reviewing data, the following points should be noted:

The collection and review of information shall be carried out continuously throughout the process of due diligence, and the information shall be continuously supplemented and updated to adapt to the changes and developments of due diligence;

The collection and review of information should be as diverse and comprehensive as possible, not only to collect internal information of the target enterprise or project, but also to collect external information, not only to collect written information, but also to collect oral information, not only to collect quantitative information, but also to collect qualitative information, in order to increase the coverage and depth of information;

The collection and examination of materials should be objective and fair as far as possible, and should not be influenced by subjective prejudice or interest temptation, should not tamper with or ignore the materials at will, should not blindly believe or deny the materials, and should have critical thinking and analysis ability;

The collection and review of information shall try to protect the safety and confidentiality of the information, avoid the loss or disclosure of the information, respect the rights and obligations of the owner and provider of the information, and comply with relevant laws and regulations.

3.3 conduct site surveys and interviews

On-site investigations and interviews are an important part of business due diligence, as well as a core part of it. On-site investigation refers to personally going to the actual operation site of the target enterprise or project to observe, inspect and test it on the spot to understand its real operation status and existing problems. Interviews refer to face-to-face or telephone communication with relevant parties of the target enterprise or project, such as management, employees, customers, suppliers, competitors, industry experts, etc., to understand their views and evaluations of the target enterprise or project. The main purpose of on-site investigation and interview is to supplement and verify the information and data of the written materials, discover and analyze the advantages and disadvantages of the target enterprise or project in depth, and explore and evaluate the potential and risks of the target enterprise or project. The main steps for conducting site surveys and interviews include:

Formulate the investigation and interview plan, determine the object, content, method, time and place of the investigation and interview, and allocate the personnel and resources of the investigation and interview;

Prepare survey and interview tools, such as survey and interview guidelines, checklists, questionnaires, record sheets, recording equipment, testing equipment, etc., as well as survey and interview related materials and documents;

Implement the investigation and interview plan, conduct on-site investigation and interview according to the predetermined arrangement, pay attention to recording the process and results of investigation and interview, and collect relevant evidence and data of investigation and interview;

Analyze the results of the investigation and interview, collate, verify and analyze the records, evidence and data of the investigation and interview, extract the key information and data of the investigation and interview, and provide reference and basis for the follow-up investigation and analysis.

When conducting on-site investigations and interviews, the following points should be noted:

The on-site investigation and interview should be carried out in the middle and late stage of the due diligence, so that the investigation and interview can be carried out more effectively and deeply after a certain understanding and preparation;

The on-site investigation and interview should be as extensive and comprehensive as possible, not only to investigate and interview the internal party of the target enterprise or project, but also to investigate and interview the external party, not only to investigate and interview the positive aspects, but also to investigate and interview the negative aspects, in order to increase the coverage and depth of the investigation and interview;

On-site investigation and interview should be as flexible and active as possible, do not rely entirely on pre-established plans and tools, according to the actual situation and needs, timely adjust and improve the investigation and interview objects, content, methods, etc., to adapt to the investigation and interview changes and development;

The on-site investigation and interview should be conducted with courtesy and integrity as far as possible, abide by the etiquette and rules of the investigation and interview, respect the object and content of the investigation and interview, do not force or deceive the object of the investigation and interview, and do not disclose or abuse the information and data of the investigation and interview.

3.4 Drafting Due Diligence Report

Drafting a due diligence report is the last and very important step in commercial due diligence. The due diligence report is a comprehensive evaluation and recommendation of the target enterprise or project, and is an important basis and reference for investors to make investment decisions. The main purpose of drafting the due diligence report is to summarize and present the process and results of due diligence, highlight and elaborate the main findings, conclusions and recommendations of due diligence, and provide investors with valuable and convincing due diligence opinions. The main steps in drafting a due diligence report include:

Determine the structure and content of the due diligence report, according to the purpose and scope of the due diligence, determine the main parts and chapters of the due diligence report, as well as the main information and data of each part and chapter;

Write the body of the due diligence report, according to the structure and content of the due diligence report, according to a certain logic and sequence, elaborate the process, data, analysis and evaluation of the due diligence report, pay attention to the use of clear, accurate, concise and standardized language, pay attention to the use of appropriate titles, paragraphs, lists, tables, charts, etc., in order to improve the readability and visibility of the due diligence report;

Write the foreword and summary of the due diligence report, according to the body of the due diligence report, briefly introduce the background, purpose, scope, methods, assumptions, limitations and structure of the due diligence report, summarize the main findings, conclusions and recommendations of the due diligence report, so as to improve the generality and focus of the due diligence report;

Attach an appendix to the due diligence report to provide relevant information, data and evidence used in the due diligence process based on the body of the due diligence report to improve the completeness and credibility of the due diligence report.

When drafting a due diligence report, the following points should be noted:

The drafting of the due diligence report should take place at the final stage of the due diligence process so that, after adequate investigation and analysis, the due diligence report can be drafted more comprehensively and accurately;

Drafting due diligence reports should be as concise and concise as possible, without the use of lengthy or complex language, without duplication or redundancy of information and data, without ambiguity or ambiguity, in order to increase the simplicity and clarity of the due diligence report;

The due diligence report should be drafted as objectively and fairly as possible, not to be influenced by subjective bias or interest temptation, not to tamper with or ignore information and data at will, not to blindly believe or deny information and data, and to have critical thinking and analysis skills;

The due diligence report shall be drafted to protect the safety and confidentiality of the due diligence report as much as possible, avoid the loss or leakage of the due diligence report, respect the rights and obligations of the owner and user of the due diligence report, and comply with relevant laws and regulations.

4.Commercial due diligenceNotes and practical skills

Commercial due diligence is a complex and important task that requires a lot of time, energy and resources, as well as certain professional knowledge and experience. In addition to following the basic processes and methods described above, the following points should be noted when conducting commercial due diligence:

Commercial due diligence should be customized according to different projects and needs, not one-size-fits-all or copy templates, according to the characteristics of the target enterprise or project and the characteristics of the industry, to determine the appropriate due diligence purpose, scope, content, methods, etc;

Commercial due diligence should be carried out at the earliest possible stage, not waiting until the last moment of investment decision-making, but before the signing of investment intention or agreement, so as to find and solve problems in time and avoid losses and risks;

Commercial due diligence should be coordinated with other types of due diligence, not in isolation, but with financial due diligence, legal due diligence, tax due diligence, etc., in order to form a complete and comprehensive due diligence system, avoid omission or duplication of work, and improve the efficiency and effect of due diligence;

Business due diligence should maintain good communication and cooperation with the relevant parties of the target enterprise or project, do not have hostility or distrust of the relevant parties of the target enterprise or project, respect and understand their positions and needs, establish and maintain good relations, in order to obtain more and better information and data, and promote the smooth progress of investment.

Business due diligence is a work that requires continuous learning and improvement. With the changes and development of the market, the content and methods of business due diligence will continue to be updated and innovated. In commercial due diligence, you can refer to the following practical skills:

Use the services of third-party institutions or experts, such as consulting companies, evaluation companies, law firms, accounting firms, etc., to obtain more professional and authoritative information and data, as well as more professional and valuable opinions and suggestions;

Use the resources of the Internet and social media, such as search engines, news websites, industry websites, social networks, blogs, forums, etc., to obtain more and more timely information and data, as well as more and more authentic opinions and evaluations;

Use cases and experiences, such as reference and learning from the successful or failed business due diligence cases and experiences of other investors or institutions, in order to obtain more and more useful insights and lessons, as well as more and more effective methods and techniques;

Use innovation and thinking breakthroughs, such as applying and experimenting with new or different business due diligence content and methods to obtain more and more meaningful information and data, as well as more and more creative findings and conclusions.