Due Diligence

Definition - What does Due Diligence mean?

Due diligence refers to an investigation made about a business prior to it being sold. Pertinent business matters like financial statements, sales history, or legal history are scrutinized so that the buyer really knows the risks involved before closing the deal with the seller.

Insuranceopedia explains Due Diligence

A potential buyer of a business endeavor must know all the important facts before deciding to purchase it. He or she must be able to gauge the possible gains and losses of that particular business.

One area that must not be overlooked is the insurance part of the business. The potential buyer must be alert about the cost of insurance that such a business entails because this will be a part of the expenditure should the business become his or hers. He or she should know what parts of the business are insured and what parts are self-insured. He or she must also know the contribution of the business to the insurance of its staff and workers. He or she should also be given a schedule of premium payments that are related to the business. Evaluating the state of insurance of a business is a significant part of risk management.

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