Due diligence definition

Due diligence is a term that has technical and practical applications. It was originally coined as a technical term for -- and is still widely used -- in the financial securities industry and its associated laws and regulations. In the securities world, due diligence is actually a standard for significant investigation into the quality of a security before it is offered, and whatever information is found must be published and made available to prospective investors before they invest.

Practically, due diligence means a complete and comprehensive effort is made to determine what could happen to cause a venture to go wrong and identify the various negative effects that could occur if a venture doesn't perform as planned, or actually fails.

Over the years, due diligence has been used by the non-security sectors of the marketplace -- instead of the word "research -- to apply the practical definition above to any venture, regardless of size or ownership. For example, someone working on starting or purchasing a business would conduct due diligence on the various elements that could negatively impact the business' success, such as: competition, capital access, location, product availability, financial records, etc.