The concept and significance of 1. investment due diligence consulting.

Investment due diligence consulting, also known as investment prudential investigation or investment due diligence, refers to a series of activities in which investors, after reaching an initial cooperation intention with the target enterprise, conduct investigation and data analysis on all matters related to the investment of the target enterprise by consensus. The main purpose of investment due diligence consulting is to provide investors with a comprehensive, objective and true portrait of the target enterprise, reveal the advantages and disadvantages of the target enterprise, discover and evaluate the potential risks and problems of the target enterprise, put forward reasonable investment suggestions and risk prevention measures, and help investors make wise investment decisions.

The significance of investment due diligence consulting is mainly reflected in the following aspects:

-Addressing information asymmetries. In investment transactions, there is information asymmetry between the investor and the target enterprise, and the investor has less information and belongs to the information-weak party. Through investment due diligence consultation, investors can collect sufficient information within a limited time, verify the authenticity and accuracy of information, and eliminate the adverse effects of information asymmetry.

-Assess the value and risk of the target business. Through investment due diligence consulting, investors can conduct a comprehensive analysis of the financial situation, business situation and legal situation of the target enterprise, understand the profitability, growth potential, competitive advantage and market position of the target enterprise, and determine the value and return on investment of the target enterprise. At the same time, investors can also find the financial risk, legal risk, market risk, management risk, etc. of the target enterprise, assess the extent and impact of the risk, and formulate corresponding risk response measures.

-Provide basis and support for investment decisions. The result of investment due diligence consultation is an important basis and support for investors to make investment decisions. According to the due diligence report and risk control report, investors can decide whether to invest, how much to invest, investment methods and conditions, etc. in combination with their own investment objectives and strategies. Investment due diligence consulting can also provide strong support for negotiations between investors and target companies, helping investors to obtain more favorable transaction terms.

-Promote communication and trust between investors and target enterprises. Investment due diligence consultation is an effective way of communication between investors and target enterprises, which can enhance the understanding and trust between the two sides, eliminate the doubts and barriers between the two sides, and lay a good foundation for subsequent cooperation. Investors can show their professionalism and sincerity to the target company through due diligence and consultation, and win the trust and respect of the target company. Target enterprises can also show their strength and potential to investors through due diligence consultation, and win the recognition and support of investors.

Content and scope of 2. investment due diligence consultation

The content and scope of the investment due diligence consultation mainly depends on the purpose, nature, scale and industry of the investment, as well as the characteristics and situation of the target enterprise. Generally speaking, the content of investment due diligence consultation can be divided into three categories: business due diligence, financial due diligence and legal due diligence, as well as other aspects that may be involved according to the characteristics of the project and the industry, such as market due diligence, technical due diligence and environmental due diligence.

(I) Business Diligence

Business due diligence refers to the investigation and analysis of the target enterprise's business conditions, business model, market conditions, competitive advantages, growth potential, etc., in order to assess the business value and risk of the target enterprise. The main contents of business due diligence include:

-Basic information about the enterprise. Including the historical evolution of the enterprise, organizational structure, management team, equity structure, association, main qualifications, social responsibility, etc.

-Products/Service situation. Including the main products of the enterprise/Types, characteristics, technical level and production of services/Service processes, quality control, research and development capabilities, innovation capabilities, intellectual property protection, etc.

-Market conditions. Including the industry development trend, market scale, market demand, market segmentation, market share, market competition pattern, market access threshold, market supervision policy, etc.

-Marketing situation. Including the enterprise's marketing strategy, marketing channels, marketing network, marketing expenses, marketing effect, customer situation, customer satisfaction, customer loyalty, customer maintenance, etc.

-Supply chain situation. Including the main raw materials of the enterprise/Equipment/The source of services, supplier selection, supplier quality, supplier stability, supplier partnership, procurement costs, procurement risk, inventory management, logistics management, etc.

-Human resources situation. Including the enterprise's personnel size, personnel structure, personnel quality, personnel mobility, personnel training, personnel motivation, personnel assessment, personnel welfare, personnel relations, human resources policy, etc.

-Business risks and issues. Including the main risks and problems existing in the business of the enterprise, such as products/Service defects, market changes, competitive pressures, supply chain disruptions, staff turnover, customer complaints, etc., as well as the company's ability and measures to deal with these risks and problems.

(II) Financial due diligence

Financial due diligence refers to the investigation and analysis of the financial situation, financial management, financial indicators, financial forecasts, etc. of the target enterprise in order to assess the financial value and risk of the target enterprise. The main elements of financial due diligence include:

-Financial statements. Including the enterprise's balance sheet, profit statement, cash flow statement, owner's equity change statement, etc., as well as the preparation method of these statements, preparation basis, preparation time, audit status, etc.

-Financial indicators. Including the calculation method, calculation result, change trend, comparative analysis of the main financial indicators of the enterprise, such as operating income, operating profit, net profit, gross profit margin, net interest rate, asset liability ratio, current ratio, quick ratio, asset turnover rate, inventory turnover rate, accounts receivable turnover rate, cash flow ratio, return on net assets, return on total assets, etc.

-Financial projections. Including the method, basis, assumptions, results, etc. of the enterprise's financial forecasts, such as revenue forecasts, profit forecasts, cash flow forecasts, asset-liability forecasts, etc. for the next few years, as well as an assessment of the reliability and reasonableness of these forecasts.

-Financial management. Including the objectives, principles, systems, processes, organizations, personnel, information systems, etc. of the financial management of the enterprise, as well as the effects and problems of these financial management.

-Financial risks and problems. Including the main risks and problems existing in the financial aspects of the enterprise, such as lack of funds, capital occupation, capital abuse, capital loss, capital risk, financial fraud, financial irregularities, financial disputes, financial litigation, etc., as well as the ability and measures of the enterprise to deal with these risks and problems.

(III) legal due diligence

Legal due diligence refers to the investigation and analysis of the legal situation, legal compliance, legal rights and interests, legal liability, etc. of the target enterprise to assess the legal value and risk of the target enterprise. The main contents of legal due diligence include:

-The legal subject of the enterprise. Including the legal representative, registered capital, registered address, business scope, business license, tax registration certificate, organization code certificate, social insurance registration certificate, etc., as well as the validity, legality and integrity of these legal subjects.

-Legal rights and interests of enterprises. Including the enterprise's equity, assets, claims, contracts, intellectual property rights, licenses, patents, trademarks, copyrights, etc., as well as the ownership, scope, duration, protection, transfer of these legal rights and interests.

-Corporate legal liability situation. Including the enterprise's debt, guarantee, pledge, mortgage, security deposit, compensation, fine, breach of contract, litigation, arbitration, etc., as well as the source, nature, amount, term, performance, violation of these legal liabilities.

-Corporate legal compliance. It includes the legal environment, legal policy, legal system, legal norms, legal supervision, legal review, legal training, etc. of the enterprise, as well as the requirements, implementation, effects and problems of these legal compliance.

-Legal risks and issues. Including the main risks and problems existing in the legal aspects of the enterprise, such as the dispute of legal rights and interests, the increase of legal liability, the lack of legal compliance, the occurrence of legal disputes, the danger of legal proceedings, etc., as well as the ability and measures of the enterprise to deal with these risks and problems.

(IV) other due diligence

Depending on the characteristics of the investment project and the characteristics of the industry, investment due diligence consulting may also involve other aspects, such as market due diligence, technical due diligence, environmental due diligence, etc. The content and scope of these due diligence are similar to those of operational due diligence, financial due diligence and legal due diligence, in that they investigate and analyze relevant aspects of the target enterprise in order to assess the value and risk of the target enterprise. The specific content and scope of these due diligence are as follows:

-Market due diligence. Market due diligence refers to the investigation and analysis of the market demand, market potential, market competition and market strategy of the target enterprise in order to assess the market value and risk of the target enterprise. The main elements of market due diligence include:

-Market demand situation. Include products of the target enterprise/The size, structure, characteristics, changes, forecasts, etc. of the market demand for services.

-Market potential situation. Include products of the target enterprise/The size, structure, characteristics, changes, forecasts, etc. of the market potential of the service.

-Competition in the market. Include products of the target enterprise/The degree, form, object, advantage, disadvantage and strategy of the market competition of the service.

-Market strategy situation. Include products of the target enterprise/The objectives, contents, methods, effects and problems of the marketing strategy of the service.

-Technical due diligence. Technical due diligence refers to the investigation and analysis of the technical status, technical level, technological innovation and technological transformation of the target enterprise in order to assess the technical value and risk of the target enterprise. The main contents of technical due diligence include:

-Technical situation. Including the target enterprise's technical resources, technical equipment, technical personnel, technical achievements, technical level, technical advantages, technical disadvantages, etc.

-Technological innovation. Including the target enterprise's technological innovation objectives, content, methods, inputs, outputs, effects, problems, etc.

-Conversion of technology. Including the way, condition, process, cost, benefit and risk of the technology transformation of the target enterprise.

-Environmental due diligence. Environmental due diligence refers to the investigation and analysis of the environmental status, environmental impact, environmental responsibility, environmental compliance, etc. of the target enterprise to assess the environmental value and risk of the target enterprise. The main contents of environmental due diligence include:

-State of the environment. Including the target enterprise's environmental resources, environmental facilities, environmental emissions, environmental quality, environmental benefits, environmental issues, etc.

-Environmental impact. Including the type, degree, scope, sustainability, reversibility, accumulation, etc. of the environmental impact of the target enterprise, as well as the environmental impact assessment and environmental impact report of the target enterprise.

-Environmental liability situation. Including the source, nature, content, amount, duration, performance, violation, etc. of the target enterprise's environmental responsibility, as well as the assumption and transfer of the target enterprise's environmental responsibility.

-Environmental compliance. Including the target enterprise's environmental laws, environmental policies, environmental standards, environmental supervision, environmental review, environmental training, etc., as well as these environmental compliance requirements, implementation, effects, issues, etc.

3. methods and tools for investment due diligence advice

The methods and tools of investment due diligence consulting depend mainly on the purpose, nature, size and industry of the investment, as well as the characteristics and situation of the target enterprise. Generally speaking, the methods and tools of investment due diligence consulting can be divided into the following categories: document review, data analysis, on-site investigation, interviews with relevant personnel, external information inquiry, expert consultation, etc.

(I) File Review

Document review refers to the review and verification of various investment-related documents provided by the target enterprise to obtain basic information and important data of the target enterprise. The main methods of document review include:

-Develop a list of documents. According to the content and scope of the investment due diligence consultation, formulate a list of documents to be provided by the target enterprise, including the name, type, quantity, format, time, etc. of the documents, as well as the method, time and provider of the documents.

-Collection of documentation. According to the list of documents, obtain relevant documents from the target enterprise, such as financial statements, contracts, certificates, licenses, patents, trademarks, copyrights, audit reports, assessment reports, risk reports, etc., as well as other documents that may be involved.

-Review the contents of the file. According to the documents, review all aspects of the target enterprise, such as financial status, business status, legal status, etc., as well as the authenticity, accuracy, completeness, consistency, etc.

-Verification of the authenticity of documents. According to the documents, verify the authenticity of the documents of the target enterprise, such as the source, signature, seal, filing, notarization, etc. of the documents, as well as the validity, legality and updating of the documents.

(II) data analysis

Data analysis refers to the analysis and evaluation of various investment-related data provided by the target enterprise to obtain the value and risk of the target enterprise. The main methods of data analysis include:

-Development of data inventories. According to the content and scope of the investment due diligence consultation, formulate a list of data to be provided by the target enterprise, including the name, type, quantity, format, time, etc. of the data, as well as the method, time and provider of the data.

-Data collection. According to the data list, obtain relevant data from the target enterprise, such as financial data, business data, legal data, etc., and other data that may be involved.

-Analyze data content. Based on the data, analyze the status of all aspects of the target enterprise, such as financial status, business status, legal status, etc., as well as the trend of these conditions, comparative analysis, forecast analysis, etc.

-Evaluate data results. Based on data analysis, evaluate the value and risk of the target enterprise, such as financial value, business value, legal value, etc., as well as financial risk, business risk, legal risk, etc.

(III) site investigation

On-site investigation refers to on-the-spot investigation and observation of the actual business premises of the target enterprise in order to obtain the actual situation and existing problems of the target enterprise. The main methods of site investigation include:

-Develop a survey plan. According to the content and scope of investment due diligence consultation, formulate the plan of on-site investigation, including the purpose, object, time, place, personnel, content, method, tool, etc. of the investigation, as well as the matters needing attention and coordination of the investigation.

-Perform investigative activities. According to the investigation plan, carry out the activities of on-site investigation, and make a field visit to the production of the target enterprise./Service premises, equipment and products/Service, inventory, logistics, etc., observe the target enterprise's operating status, management status, employee status, customer status, etc., and record the process and results of the investigation.

-Summary of survey results. According to the investigation activities, summarize the results of the on-site investigation, such as the actual situation of the target enterprise, existing problems, suggestions for improvement, etc., as well as the advantages and disadvantages, gains and difficulties of the investigation.

Interviews with relevant (IV) personnel

Interviews with relevant personnel refer to the communication and exchange of relevant personnel of the target enterprise in order to obtain internal information and external evaluation of the target enterprise. The main methods of interviewing relevant personnel include:

-Develop an interview plan. According to the content and scope of investment due diligence consultation, formulate the interview plan of relevant personnel, including the purpose, object, time, place, personnel, content, method, tools, etc. of the interview, as well as the matters needing attention and coordination of the interview.

-Perform interview activities. According to the interview plan, implement relevant personnel interview activities, such as communicating and communicating with senior management, middle management, front-line employees, related parties, partners, competitors, customers, suppliers, experts, regulatory agencies, etc. of the target enterprise, asking and understanding all aspects of the target enterprise, recording the interview process and results, etc. According to the interview activities, summarize the results of the interview with relevant personnel, such as internal information of the target enterprise, external evaluation, existing problems, suggestions for improvement, etc., as well as the advantages and disadvantages, gains and difficulties of the interview.

(V) external information query

External information inquiry refers to the inquiry and verification of the external information of the target enterprise in order to obtain the public information and third-party evaluation of the target enterprise. The main methods of external information inquiry include:

-Develop a query plan. According to the content and scope of investment due diligence consultation, formulate a plan for external information inquiry, including the purpose, object, time, place, personnel, content, methods, tools, etc. of the inquiry, as well as matters needing attention and coordination of the inquiry.

-Perform query activities. According to the inquiry plan, carry out external information inquiry activities, such as inquiring and verifying the registration information, business information, financial information, legal information, credit information, rating information, public opinion information, etc. of the target enterprise through the network, newspapers, databases, archives, announcements, publicity, notarization and other channels, and recording the process and results of the inquiry.

-Summarize query results. According to the query activity, summarize the results of external information query, such as public information of the target enterprise, third-party evaluation, existing problems, suggestions for improvement, etc., as well as the advantages and disadvantages, gains and difficulties of the query.

(VI) expert consultation

Expert consultation refers to the consultation and help of experts in the relevant fields of the target enterprise in order to obtain the professional opinions and suggestions of the target enterprise. The main methods of expert consultation include:

-Develop a consultation plan. According to the content and scope of investment due diligence consultation, formulate a plan for expert consultation, including the purpose, object, time, place, personnel, content, methods, tools, etc. of the consultation, as well as matters needing attention and coordination of the consultation.

-Perform consulting activities. According to the consultation plan, carry out the activities of expert consultation, such as communicating and communicating with experts in relevant fields of the target enterprise, asking and understanding all aspects of the target enterprise, and recording the process and results of the consultation.

-Summarize the results of the consultation. According to the consulting activities, summarize the results of the expert consultation, such as the professional opinions of the target enterprise, suggestions, existing problems, suggestions for improvement, etc., as well as the advantages and disadvantages, gains and difficulties of the consultation.

4. the process and steps of investment due diligence consulting.

The process and steps of investment due diligence consultation mainly depend on the purpose, nature, scale and industry of the investment, as well as the characteristics and situation of the target enterprise. Generally speaking, the process and steps of investment due diligence consulting can be divided into the following stages: developing a due diligence plan, collecting and organizing due diligence information, writing due diligence reports and risk control reports, conducting internal reviews and communication, and designing investment plans.

(I) development of a due diligence plan

The formulation of a due diligence plan refers to the formulation of an overall plan for investment due diligence consultation based on the purpose, nature, scale and industry of the investment, as well as the characteristics and conditions of the target enterprise, including the objectives, contents, scope, methods, tools, personnel, time, costs, precautions, etc., as well as the coordination and communication mechanism of due diligence. The main steps in developing a due diligence plan include:

-Determination of due diligence goals. According to the purpose, nature, scale and industry of the investment, determine the overall objectives of the investment due diligence consultation, such as assessing the value and risk of the target enterprise, providing the basis and support for investment decision-making, and promoting communication and trust between the investor and the target enterprise.

-Determine the content of due diligence. According to the purpose, nature, scale and industry of the investment, as well as the characteristics and situation of the target enterprise, determine the specific content of the investment due diligence consultation, such as business due diligence, financial due diligence, legal due diligence, market due diligence, technical due diligence, environmental due diligence, etc., as well as the details and scope of these due diligence.

-Determine the method of due diligence. According to the purpose, nature, scale and industry of the investment, as well as the characteristics and situation of the target enterprise, determine the appropriate methods of investment due diligence consultation, such as document review, data analysis, on-site investigation, interviews with relevant personnel, external information inquiry, expert consultation, etc., as well as the specific steps and tools of these methods.

-Identification of due diligence personnel. According to the purpose, nature, scale and industry of the investment, as well as the characteristics and situation of the target enterprise, determine the appropriate personnel for investment due diligence consulting, such as investors, target enterprises, due diligence consulting institutions, due diligence consulting teams, due diligence consulting experts, etc., as well as the responsibilities and division of labor of these personnel.

-Determine the due diligence time. According to the purpose, nature, scale and industry of the investment, as well as the characteristics and conditions of the target enterprise, determine the reasonable time of investment due diligence consultation, such as the start time, end time, stage time, milestone time, etc., as well as the arrangement and adjustment of these times.

-Determination of due diligence costs. According to the purpose, nature, scale and industry of the investment, as well as the characteristics and situation of the target enterprise, determine the reasonable costs of investment due diligence consulting, such as the total cost of due diligence, sub-costs, budget costs, actual costs, payment methods, payment time, etc., as well as the control and optimization of these costs.

-Identify due diligence considerations. According to the purpose, nature, scale and industry of the investment, as well as the characteristics and situation of the target enterprise, determine the important considerations of investment due diligence consultation, such as the confidentiality, legality, effectiveness, timeliness, comprehensiveness, objectivity, independence, etc., as well as the implementation and supervision of these considerations.

-Identification of due diligence coordination mechanisms. According to the purpose, nature, scale and industry of the investment, as well as the characteristics and conditions of the target enterprise, determine the effective coordination mechanism of investment due diligence consultation, such as due diligence communication mode, communication frequency, communication content, communication personnel, communication record, etc., as well as due diligence coordination mode, coordination frequency, coordination content, coordination personnel, coordination record, etc.

(II) collection and collation of due diligence information

The collection and collation of due diligence information refers to the collection and collation of various documents, data, information, etc. related to investment from the target enterprise in accordance with the due diligence plan, so as to provide the necessary due diligence information for due diligence analysis and evaluation. The main steps in the collection and collation of due diligence information include:

-Collection of due diligence information. According to the due diligence plan, collect all kinds of due diligence information related to the investment from the target enterprise, such as documents, data, information, etc., as well as other due diligence information that may be involved.

-Collate and adjust the information. According to the due diligence plan, organize the collected due diligence data, such as classification, filing, numbering, marking, backup, etc., so as to facilitate due diligence analysis and evaluation.

-Verification of due diligence information. According to the due diligence plan, verify the collected due diligence data, such as authenticity, accuracy, completeness, consistency, validity, legality, etc., to ensure the quality and reliability of the due diligence data.

(III) writing due diligence report and risk control report

The preparation of due diligence reports and risk control reports refers to the due diligence analysis and evaluation of all aspects of the target enterprise in accordance with the due diligence plan, using the collected and collated due diligence information, in order to form a due diligence report and risk control report. A due diligence report is a report that provides a comprehensive, objective and truthful description and evaluation of the value and risk of the target enterprise. Risk control report refers to the detailed, professional and effective identification and control of the risk of the target enterprise. The main steps for preparing a due diligence report and a risk control report include:

-Analysis of due diligence information. According to the due diligence plan, use the collected and collated due diligence information to conduct due diligence analysis of all aspects of the target enterprise, such as financial analysis, business analysis, legal analysis, market analysis, technical analysis, environmental analysis, etc., as well as the methods, tools and results of these analyses.

-Evaluate the results of due diligence. According to the due diligence analysis, the value and risk of the target enterprise are assessed, such as financial value, business value, legal value, market value, technical value, environmental value, etc., as well as financial risk, business risk, legal risk, market risk, technical risk, environmental risk, etc., as well as the methods, tools and results of these assessments.

-Compose a due diligence report. Based on the due diligence assessment, write a due diligence report, including the purpose, scope, methodology, conclusions, recommendations, etc. of the due diligence report, as well as the format, structure, language, style, etc. of the due diligence report, as well as the attachments, references, and acknowledgements of the due diligence report.

-Write risk control report. According to the due diligence assessment, write the risk control report, including the purpose, scope, methods, conclusions, recommendations, etc. of the risk control report, as well as the format, structure, language, style, etc. of the risk control report, as well as the attachments, references, and acknowledgements of the risk control report.

(IV) internal review and communication

Internal review and communication refers to the internal review and communication of the due diligence reports and risk control reports prepared in accordance with the due diligence plan to ensure the quality and reliability of the due diligence reports and risk control reports. The main steps for internal review and communication include:

-Review the due diligence report. According to the due diligence plan, review the written due diligence report, such as content, format, structure, language, style, etc., as well as the authenticity, accuracy, completeness, consistency, validity, legality, etc. of the due diligence report, as well as the advantages and disadvantages, gains and difficulties of the due diligence report.

-Review the risk control report. According to the due diligence plan, review the written risk control report, such as content, format, structure, language, style, etc., as well as the authenticity, accuracy, completeness, consistency, validity, legality, etc. of the risk control report, as well as the advantages and disadvantages, gains and difficulties of the risk control report.

-Communicate due diligence results. According to the due diligence plan, communicate with investors, target enterprises, due diligence consulting agencies, due diligence consulting teams, due diligence consulting experts, etc., such as sharing the contents of due diligence reports and risk control reports,Conclusion, suggestions, etc., as well as soliciting their opinions, feedback, suggestions, etc., and solving their questions, problems, difficulties, etc.

(V) Design Investment Scheme

Designing an investment plan refers to designing and optimizing the feasibility, conditions, methods, terms, etc. of the investment according to the due diligence plan, using the due diligence report and risk control report written, in order to form an investment plan. The main steps in designing an investment programme include:

-Analysis of investment feasibility. Based on the due diligence report and risk control report, analyze the feasibility of the investment, such as the purpose, nature, scale and industry of the investment, as well as the value, risk, rate of return, income period, etc. of the target enterprise, as well as the advantages and disadvantages, gains and difficulties of the investment.

-Determination of investment conditions. According to the due diligence report and risk control report, determine the conditions of the investment, such as the amount of the investment, the term, interest rate, dividends, exit, etc., as well as the protection and constraints of the investment.

-Determine the investment method. According to the due diligence report and risk control report, determine the investment mode, such as equity investment, debt investment, mixed investment, joint investment, merger and acquisition investment, equity investment, holding investment, etc., as well as the advantages and disadvantages of investment.

-Determine the terms of the investment. According to the due diligence report and the risk control report, determine the terms of the investment, such as the purpose of the investment, the object, the amount, the manner, the conditions, the term, the interest rate, the dividend, the exit, the protection, the restraint, the default, the dispute, etc., as well as the agreement and contract of the investment.

Conclusion

Investment due diligence consulting is an important professional service in investment transactions. It can provide investors with a comprehensive, objective and true portrait of the target company, reveal the advantages and disadvantages of the target company, and discover and evaluate the potential risks and problems of the target company. Put forward reasonable investment suggestions and risk prevention measures to help investors make wise investment decisions. The content and scope of investment due diligence consultation mainly includes business due diligence, financial due diligence and legal due diligence, as well as other aspects that may be involved according to the characteristics of the project and industry, such as market due diligence, technical due diligence and environmental due diligence. The methods and tools of investment due diligence consultation mainly include document review, data analysis, on-site investigation, interviews with relevant personnel, external information inquiry, expert consultation, etc. The process and steps of investment due diligence consultation mainly include the formulation of due diligence plan, collection and collation of due diligence data, preparation of due diligence report and risk control report, internal review and communication, design of investment plan, etc. Taking Shangpu Consulting Group as an example, this paper makes a detailed analysis of the concept, significance, content, scope, methods, tools, processes and steps of investment due diligence consulting, hoping to be helpful to investors and target enterprises.