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The process of due diligence requires in-depth auditing, verification and research of accessible financial information and company data to lower risk and promote the success of mergers and acquisitions or large investments.
A career in financial due diligence presents the opportunity to give decision-makers the information they need to make data-driven choices that help mitigate risk. Through investigations of financial statements and a wide range of company data, due diligence is a necessary piece of large-scale transactions that ensure one party has a clear understanding of another company’s financial health before final agreements are set in stone.
Typical Job Duties in Due Diligence
The job of a financial analyst specializing in due diligence requires taking a microscope to a company’s financial holdings, statements, customer accounts, and other documentation to identify potential irregularities or issues that may put their client’s potential investments at risk. Additionally, financial due diligence analysts forecast the future performance of a company and present their findings to senior leadership so management has the information it needs to make the right decision before moving forward on an investment.
Financial due diligence is a critical piece of M&A, large-scale investment activities, and other high-risk financial decisions. Through the identification of negative trends, inaccurate filings, or other potentially problematic factors, the job of a due diligence analyst is an incredibly important one for companies and firms of all sizes to protect their assets from future harm. Due diligence analysts also evaluate a firm’s current performance in the marketplace, predict future trends, and determine value across a range of metrics.
As part of the job description, analysts often work with a team of industry specialists and report their findings to company management. Due diligence activities are particularly important to investment banks, private equity firms, hedge funds, and other groups to ensure they are making well-informed business decisions.
Compensation Factors and Salary Expectations in Due Diligence
Compared with other careers in the financial sector, due diligence falls on the lower end of the salary spectrum. However, factors such as experience, type of industry, and location affect how much a due diligence analyst can expect to make. More experience in evaluating firms’ financial health is associated with higher salaries for analysts. Additionally, due diligence jobs found in large cities like Los Angeles or New York City offer higher pay than those in smaller markets.
Those who take on large-scale M&A projects can expect higher salaries as millions (maybe billions) of dollars in assets are on the table, and companies are highly motivated to de-risk a potential investment. For smaller-scale investments and mergers, salary expectations for due diligence are typically lower.
Job Qualifications for Due Diligence
The career path of a financial analyst working in due diligence usually begins with a few years of experience in the financial sector. Data analysis and accounting are some of the most common areas that future analysts embark on before entering financial due diligence. Successful analysts are very comfortable with all types of financial statements and know how to spot negative trends when they appear. Some companies will attempt to conceal patterns in their financial statements that suggest performance is lower than expected, and it takes an analyst with a keen eye for detail to locate these issues and bring them to the forefront.
Those who succeed in financial due diligence jobs are extremely detail-oriented, tenacious in their ability to uncover hard-to-find data, and highly analytical thinkers. They must also be excellent communicators who can unpack large amounts of financial data in an easily digestible way so senior leaders can make accurate, data-driven choices.
Recommended Financial Courses for a Career in Due Diligence
Having a thorough understanding of financial analysis and accounting is crucial in the field of due diligence. CFI offers a wide array of online courses to support those who are interested in making a career shift to financial due diligence. Our courses in Accounting Fundamentals and Financial Analysis Fundamentals give individuals a solid foundation to begin their career in due diligence. From there, students can take advantage of more specialized courses such as Environmental Due Diligence and dive into best practices for dissecting financial statements.
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