Business due diligence is an important business activity that can help decision makers make more confident and valuable choices in the face of complex market conditions and an uncertain future. Commercial due diligence can be applied to a variety of scenarios, such as investors evaluating target companies or projects before investing, companies reviewing potential acquisitions before mergers and acquisitions, partners understanding partners before partnering, and so on. The core of business due diligence is to collect, analyze and verify information to reveal the true status, potential and risks of the target enterprise or project, so as to provide a basis for decision-making.

Business due diligence is not just data analysis. Although data analysis is an indispensable part of business due diligence, it is not enough to support a complete and effective business due diligence. Data analysis is mainly through the measurement of financial data, operational data, market data, etc., to draw some quantitative indicators and conclusions, such as revenue, profit, cost, market share, growth rate and so on. Data analysis can help us understand the historical performance and current situation of the target enterprise or project, but it cannot tell us why there is such performance and current situation, and how it will change in the future. In order to answer these questions, we also need to conduct strategic thinking, industry insights, customer interviews, competitor research, and other aspects of analysis.

Strategic thinking refers to the logical and systematic thinking and evaluation of the business model, value proposition, core competitiveness and development direction of the target enterprise or project from a macro and long-term perspective. Strategic thinking can help us understand how the target company or project creates value and whether it will continue to create value in the future. Strategic thinking requires the application of a number of strategic frameworks and tools, suchSWOTAnalysis (advantages-Disadvantages-Opportunity-threat analysis), Porter's five forces model (industry competitiveness analysis),VRIOmodel (resource and capability analysis), blue ocean strategy (innovation and differentiation analysis), etc.

Industry insight refers to an in-depth understanding and analysis of the scale, structure, trends, driving forces, and challenges of the industry in which the target company or project is located. Industry insight can help us grasp the market opportunity and competitive pressure of the target enterprise or project, as well as its position and influence in the industry. Industry insight requires the use of a number of industry analysis methods and tools, suchPESTAnalysis (Political-Economy-Society-technical analysis),STEEPAnalysis (Social-Technology-Economy-Ecology-political analysis),S-C-Pmodel (structure-Behavior-performance analysis), value chain analysis (industry value creation process analysis), etc.

Customer interviews refer to direct or indirect communication with existing or potential customers of the target enterprise or project to obtain their needs, satisfaction, loyalty, feedback, suggestions and other information about the target enterprise or project. Customer interviews can help us understand how the target company or project meets the needs and expectations of the customer, as well as its image and reputation in the customer's mind. Customer interviews require the use of a number of interview skills and tools, such as open-ended questions (non-true questions), exploratory questions (guiding customers to express in depth), situational questions (setting specific situations for customers to answer), and scale questions (allowing customers to score or rank).

Competitor research is a business-like analysis of direct or indirect competitors of a target company or project to obtain information about their business model, market performance, competitive advantage, and development strategies. Competitor research can help us compare the differences and advantages of a target company or project with its competitors, as well as its strengths and weaknesses in a competitive environment. Competitor research requires the use of a number of competitive analysis methods and tools, such as competitive maps (comparing competitors according to different dimensions), the four-corner approach (analyzing competitors' motivations, capabilities, assumptions, and strategies), and strategic group analysis (dividing competitors according to different strategic factors).

These are several other important aspects of business due diligence besides data analysis, which are complementary and mutually influencing and cannot be viewed in isolation. A complete and effective business due diligence requires a combination of these aspects of analysis to form a comprehensive, in-depth and objective assessment report to support decision makers in making sound judgments and choices.

Below we will introduce some of the best practices and common misconceptions in the industry in order to provide readers with some reference and inspiration.

Best Practices:

Clarify the objectives and scope of commercial due diligence. Before starting commercial due diligence, it is necessary to clarify what the objectives of commercial due diligence are to be achieved and what aspects are to be covered. This helps us to develop appropriate business due diligence plans, identify the sources of information, methods and tools needed, and allocate time and resources appropriately.

Use diversified and reliable sources of information. When conducting business due diligence, information needs to be collected from multiple angles and channels, such as public resources, industry reports, customer interviews, competitor research, etc. At the same time, it is necessary to verify and filter the collected information, eliminate inaccurate, outdated or biased information, and ensure the authenticity and validity of the information. 3. A structured and logical approach to analysis is used. When conducting business due diligence, information needs to be organized and presented according to a certain structure and logic, such as dividing topics according to business model, market environment, competitive advantage, risk factors, etc., and according to facts-Analysis-The order of the conclusions is discussed. This helps us to express and communicate information clearly and avoid confusion and repetition. 4. Adopt visual and intuitive presentation. When doing business due diligence, you need to use visual and intuitive tools and techniques, such as charts, graphs, images, colors, symbols, etc., to present data, analysis, and conclusions. This helps us engage and influence readers more effectively, highlighting key points and highlights. 5. Adopt innovative and differentiated ways of thinking. In commercial due diligence, it is necessary to use some innovative and differentiated ways of thinking, such as reverse thinking (starting from the opposite side), analogical thinking (starting from similarities), critical thinking (starting from problems), design thinking (starting from users), etc., to find and solve problems and put forward new ideas and suggestions. This can help us better adapt to change and seize opportunities, and increase the value and impact of business due diligence.

Common misconceptions:

Too much reliance on data analysis. Data analysis, while important, cannot completely replace other aspects of analysis. Data analysis can only tell us what is the truth, but it cannot tell us why this is the case and what to do. Data analysis also cannot reflect some factors that are difficult to quantify, such as brand, culture, innovation, etc. Therefore, when conducting business due diligence, we should not only look at the data, but also look at the logic and meaning behind it.

Too much reliance on publicly available information. Public information, while easily accessible, has some limitations. Public information may be incomplete, untimely or inaccurate, and may be biased or misleading. Therefore, when conducting commercial due diligence, one should not only trust public information, but also look for information from other sources, such as customer interviews and competitor research.

Too much reliance on subjective judgment. Although subjective judgment has certain value, it also has certain risks. Subjective judgment may be influenced by personal experience, knowledge, emotion and other factors, leading to some deviations or errors. Therefore, when conducting commercial due diligence, we should not only rely on subjective judgment, but also have objective evidence and reasons to support it.

Too much reliance on templates and routines. Although templates and routines have certain guiding functions, they also have certain limitations. Templates and routines may not be appropriate for every scenario and situation, and may result in some repetitive or stale content. Therefore, when carrying out commercial due diligence, we should not only apply templates and routines, but also carry out customized and innovative analysis according to specific objectives and scope.

Summary:

Business due diligence is an important business activity that can help decision makers make a comprehensive, in-depth and objective evaluation and analysis of the target enterprise or project before making major decisions such as investment, mergers and acquisitions, cooperation, etc., in order to support decision makers to make reasonable judgments and choices. Business due diligence is not only data analysis, but also includes strategic thinking, industry insight, customer interviews, competitor research and other aspects. It requires the use of professional methods and tools, as well as rich experience and creativity. This article describes the purpose, processes, methods, and tools of business due diligence, as well as best practices and common misconceptions in the industry, in the hope that it will be helpful to the reader.