Commercial due diligence is the process of investigating a company's commercial activities, typically in preparation for a major transaction such as an acquisition or investment.

The scope of commercial due diligence can vary depending on the nature of the transaction and the parties involved, but typically includes an assessment of the target company's commercial strategy, customers, suppliers, competitors, and market opportunity.

Importance of commercial due diligence

Commercial due diligence is important because it can help identify and quantify commercial risks that might otherwise be overlooked. It is also an important tool for negotiating the terms of a transaction and can help ensure that the buyer or investor understands what they are getting into.

While commercial due diligence is often associated with large transactions, it can also be useful for smaller businesses looking to expand or enter new markets. In these cases, commercial due diligence can help identify potential partners, customers, and suppliers, as well as assess the risks and opportunities associated with a new venture.

Whether you're considering a major transaction or expanding into new territory, commercial due diligence is an important tool for understanding the commercial risks and opportunities associated with your business.

Commercial due diligence checklist:

- Define the scope of the commercial due diligence process

- Identify the key stakeholders involved in the commercial due diligence process

- Assess the target company's commercial strategy

- Analyse the target company's customer base

- Evaluate the target company's supplier relationships

- Understand the target company's competitive landscape

- Assess the target company's market opportunity

- Negotiate the terms of the transaction

- Understand the risks and opportunities associated with your business venture.

How to go through the due diligence process?

While conducting due diligence, a company should focus on 7 core aspects. These aspects include:

Viability: A thorough study of the business and financial plans of the company that is being acquired can help you better understand its viability.

Monetary Aspect: The economic aspect is always considered a vital facet of every business. Analyzing the critical financial data helps you understand the complete picture by focusing on the monetary part.

Environment: A business always affects the environment. It is working in some way or the other. Hence, it becomes essential to analyze the macro environment and what impact it has or will have on the company.

Personnel: The company's employees form a significant component of the business. Hence analyzing the capabilities and credibility of the company's employees is another crucial factor of due diligence. The due diligence process concerned with the people within the company and its customer base are known as soft due diligence.

Existing & Potential Liabilities: A due diligence shall also evaluate any litigations and regulatory issues that the company is facing or might face in the future.

Technology: The technology currently available with the target company is considered an asset and shall be evaluated as it paves the way to deciding the plan of action.

Effect of Synergy: Synergy between the two involved parties is also considered a tool for decision-making.