Question 1

When should you do due diligence before signing a contract?

Accepted Answer

For any deal involving serious money, long-term commitment, or significant risk. A $500/month SaaS subscription? Probably fine without deep diligence. A $100,000 partnership, commercial lease, or acquisition? You'd be reckless to skip it. Scale your investigation to the size and risk of the deal.

Question 2

What does contract due diligence include?

Accepted Answer

At minimum: verify the other party's legal standing, review their financials, check for existing litigation, confirm they own what they're selling or licensing, and read every contract you're assuming. For bigger deals, add background checks, customer references, regulatory compliance review, and environmental assessments.

Question 3

How long does due diligence take?

Accepted Answer

Anywhere from a few days for simple deals to 3–6 months for acquisitions. A commercial lease might take 2–4 weeks. A business purchase can take months. Don't rush it — deals that fall apart during due diligence saved you from a bad decision. Better to lose the deal than lose your money.

Question 4

What happens if you skip due diligence?

Accepted Answer

You might discover problems after you've already signed and paid — like the IP you licensed is subject to someone else's claim, or the business you bought has undisclosed debts. At that point, your options are expensive lawsuits or eating the loss. Due diligence costs money upfront but prevents much bigger losses.

Question 5

Can you include a due diligence period in a contract?

Accepted Answer

Yes — it's standard in real estate and M&A deals. The contract includes a due diligence period (typically 30–90 days) during which the buyer can investigate and walk away if they find problems. Include clear termination rights if due diligence reveals issues, or you've just agreed to buy something sight unseen.

Due Diligence

Definition

In Practice

Common in these contract types

Frequently asked questions about due diligence

Create a contract with proper due diligence clauses