Introduction

In this post, we'll look at commercial due diligence firms (CDD firms), and why they are important for businesses. We'll discuss what CDD is and how it works, as well as its benefits. We'll also give examples of when you should use commercial due diligence firms. In addition, we'll talk about the key steps that are involved in carrying out a survey process.

What are commercial due diligence firms?

Commercial due diligence (CDD) is a specialised form of due diligence that provides information on a prospective business partner’s operation, management, and potential risk factors. This includes examining your potential partner's creditworthiness, personal and professional background, as well as their financial situation. It can also help you understand the structure of their business and whether it fits with your goals. However, note that this is just one form of commercial due diligence. This term is very broad and can be defined in several other ways. Broadly, it can be said that commercial due diligence is the process of evaluating a business or an investment opportunity. Commercial due diligence firms can then be defined as firms that undertake this process of evaluation.

For more information on this term, check out KPMG’s guide here.

Commercial due diligence VS Financial Due diligence

CDD differs from financial due diligence in that it focuses on analysing more than just the numbers. Commercial due diligence firms look at all aspects of an individual or company to determine if they are a good fit for your business relationship.

CDD is important for any business transaction, but it’s especially critical if you are considering entering into a partnership. If you don’t perform CDD on your partner, you run the risk of losing money or being left with an undesirable partner who could jeopardise your company's success.

How do commercial due diligence firms work?

Typically, firms do not conduct due diligence themselves. Instead, they commission market research experts to perform the necessary research and analysis on a client's behalf. CDD firms are experts in their own right and know how to find the right people to do the work.

Why? Because it takes time for an investor to fully understand what he or she wants from a transaction (and where there is value). If you hire an independent party, you can focus on negotiations instead of chasing down information about your target companies.

In addition, many CDD firms have strong relationships with key industry players who can provide insights and perspectives that would otherwise be unavailable through public sources. These sources might include government filings and news articles.

Due diligence firms are also experienced in finding and contacting potential sources of information. They know how to deal with people who may be reluctant to talk or have outdated information, which is often the case. Commercial due diligence firms can help you identify the right people, and get them on the phone to start a conversation. In addition, they can persuade them to share their insights before they become out of date (or unavailable).

Who uses commercial due diligence firms?

If your business is considering a new product or service, you’ll want to hire a CDD firm. If you’re looking to buy, sell or merge with another company, commercial due diligence firms will help with that as well.

And if you simply want to understand the market better, who’s buying what, how much they’re paying, and how many competitors there are, a CDD firm can provide helpful insight into the industry. Additionally, commercial due diligence firms can provide information that could mean the difference between success and failure of your business plan.

When you’re considering a new product or service, it’s important to have an understanding of what other companies are doing in your market. If there are already similar products on the market and they’re selling well, it probably isn’t worth your time to build one yourself. Check out Entrepreneur’s article on competitor intelligence here.

When is commercial due diligence carried out?

Commercial due diligence can be carried out in a variety of different situations. One such situation is when a transaction is taking place between a buying firm and a selling firm. A CDD is carried out in order to protect the interests of both parties. The buyer and seller should each appoint a CDD firm to carry out due diligence on their respective sides. This is so that they can be sure that the information they have about one another is accurate and comprehensive.

A CDD can be carried out prior to any major investment or transaction, including:

• Mergers and acquisitions
• New product or service launches
• Early stages of business plans
• Raising capital from investors

The CDD can be conducted in a number of ways. For example, an on-site inspection may be carried out in order to gain a comprehensive understanding of the target company’s operations and financial health. This would include looking at the company’s assets and liabilities, as well as its legal obligations.

Another option would be to carry out a desktop review of the company’s financial statements and other documents. This can be an effective method for gaining insight into the target business. However, it does not provide as much information as an on-site inspection. A third option is to conduct interviews with key personnel in order to gain a better understanding of the company’s operations and financial health. Commercial due diligence can also be carried out with the help of global surveys. Want to know more about these surveys and how they can help you with your investment decisions? Check out our blog post which talks about how to use B2B due diligence surveys in your investment decisions.

CDD survey process & methodology

In order to complete an effective due diligence survey, your commercial due diligence firm will need a thorough understanding of your business. The first step in this process is conducting a series of interviews and surveys with you, the business owner(s), and other key personnel at your company. These conversations will allow the CDD firm to understand what makes your company unique and how it operates. In addition, you can gain insight into any future growth plans or challenges you may face. Additionally, they'll discuss details such as:

• Products Offered
• Channels used to reach customers (e.g., retail stores versus e-commerce)
• Customer base demographics (age range, gender)
• Main competitors

Your commercial due diligence firm may also ask for access to documents pertaining to financial statements, contracts with suppliers or clients or customers or vendors, etc. This information can help them gauge whether or not there are any potential risks associated with working with you. These risks may include bankruptcy risk if customers aren't paying on time. In addition, they can determine whether or not any additional questions should be asked during their research phase.

Once a commercial due diligence firm has gathered this information, it will review your company's financial statements and other relevant documentation to ensure everything is accurate. They may also conduct additional research into things like industry trends. Additionally, they may perform an analysis of the market conditions in which you operate. This will help them determine whether or not there are any inherent risks associated with doing business with you. Some examples of these risks include supply chain issues or competition from larger companies. They will then determine what steps should be taken in order to mitigate these risks.

Key steps in the CDD process

When a potential buyer is looking to buy a business, they must first conduct due diligence. This is the process of investigating a company and its operations before making an offer to purchase it. Any company that’s for sale should be thoroughly vetted before you agree to pay for it. In general, there are four key steps involved in conducting due diligence:

• Understanding the target company
• Knowing the target company's industry
• Understanding the target company's market(s)
• Understanding your customers (or “customers” if it’s an acquisition of another firm) and their needs and wants from you as a provider of goods or services. This can also include understanding whether or not there are other providers who can fulfil those needs if yours doesn't meet them properly; if so, then what makes yours different from theirs? What makes customers choose one over another? How does price factor into this decision? Do enough research into these areas before making any decisions regarding buying out another firm; otherwise, this could lead to serious problems down the road once things become more complicated.

One of the most important steps in conducting due diligence is to understand the target company's industry. In order to do this, you must learn about similar companies within that same industry and see how their value propositions differ from one another. You can also look at market share trends over time to see where your target firm fits into them.

The third step in conducting due diligence is to understand the target firm's business model. This includes understanding how they make money and how much profit they generate. You should also look at how the target firm is structured, what kind of organisational culture they have, and whether or not that culture aligns with your own. One more step in conducting due diligence is to understand the target company's financial situation. This includes looking at how much debt they owe and how much money they have available for new investment opportunities.

How do commercial due diligence firms provide value?

CDD firms are specialised in market research, which can help you make more informed decisions about your business. Commercial due diligence firms provide valuable insights into products, channels, and customers to help you maximise the value of an investment decision.

Check out Deloitte’s article here that talks about the benefits of commercial due diligence. CDD firms have experience preparing for due diligence that can be beneficial for you.

To learn more about how commercial due diligence firms work, please contact us today.

Conclusion

The commercial due diligence process can be a valuable tool for your acquisition, especially if you’re buying into a new market. A CDD firm can help you discover the strengths and weaknesses of an organisation, its competitors, and its customers so that they can be addressed while strengthening the value of your investment.