Due Diligence and Evaluation Process - Essay Example

Due diligence is a term commonly associated with such an evaluation process. It refers to the care a reasonable person should take before entering into an agreement or a transaction with another party. It is an investigation or audit of a potential investment. Due diligence is a way of preventing unnecessary harm to either party involved in a transaction (Due Diligence – DD, 2009)

Most of the investors will evaluate the past and present financial records of the company before making decisions about the investment. So, the entrepreneur must prepare such financial records of the company for verification by the investors. An investor needs to be convinced about the financial capabilities of the company before making decisions about investing. For that purpose, the entrepreneur must present the financial history of the company in simple terms understandable to even a layman.

An executive summary of the business plan is also required by the founders of the venture to convince the investors. It is only through these business plans the investor will know about how the company is going to utilize the money collected from them. The investors also must be convinced about the scope of the business and the market opportunities and hence the business plan must be well written in simple words to attract the investors.

Some investors are keen on knowing more details about the company like the assets of the company, customers, environmental issues, foreign operations, legal matters, product issues, suppliers, tax issues, and matters relating to ownership change (Due Diligence Checklists, 2009) The current Investors are extremely careful in investing in shares and hence they will investigate about all the activities of the company before investing. They will analyze the prospects of the company based on the parameters mentioned above. They know that if the company's activities produce any environmental problems, then in the future they may face probes with ems the legal investors know that good customer are required for the growth of a company. The reputation of the products of the company will also be analyzed by the investors before making scions. They will also analyze the chances of possible ownership changes through acquisition or mergers. The founders of the venture must consider all these investors interested areas and must provide all such details to the customer to make decisions about investing.