Financial Due Diligence: Turns Risk into Opportunity

Financial Due Diligence (FDD) is a critical foundation for successful deals.

In any acquisition or divestment situation, FDD ensures buyers have full insights into the business, its trends and drivers, the accuracy of underlying financial information, and potential red flags.

It brings clarity and certainty, helping buyers make informed decisions before entering the deal, so there are no unpleasant surprises later.

Why is Financial Due Diligence crucial?

While evaluating a business, there may be risks that are not immediately visible. FDD helps uncover hidden liabilities such as inaccurate accounting treatments, under-recognition of costs, cash leakages, and off-balance sheet liabilities.

FDD ensures the right adjustments are made to underlying profitability, debt-like items, and working capital gaps — ultimately shaping the valuation and ensuring that any price adjustments are reflected in the deal terms.

Major types of Financial Due Diligence:

• Red Flag Financial Due Diligence – Identifies risks in a potential transaction early on, often acting as an initial stage before a full-scope due diligence is undertaken.
• Comprehensive Financial Due Diligence – A full-scale due diligence suited for larger deals where every detail matters.
• Vendor Due Diligence – A seller-led exercise to present an open and accurate picture of the business, making the process smoother and more efficient for potential buyers.