Glossary · Diligence
Red flag report
Definition
A red flag report is a short due diligence report that only covers the issues that could change the price, the deal terms or the decision to proceed. It is faster and cheaper than a full descriptive report, and it is the format most buyers ask their lawyers and accountants for.
Related terms
Due diligence The investigation a buyer, investor or lender runs on a company before committing: its finances, contracts, legal position and operations. Legal due diligence The lawyers' review of a company: ownership, key contracts, disputes, licences, employment terms and intellectual property. Vendor due diligence Due diligence a seller commissions on its own business before a sale, so bidders get one independent report up front. Commercial due diligence A test of the target's market, customers, competitors and growth plan, to see whether the business case holds. Financial due diligence Diligence on the numbers: earnings, working capital, debt and cash flow behind the headline figures. Operational due diligence Diligence on how the business actually runs: processes, systems, supply chain, sites and people. Tax due diligence A review of the target's tax filings, structures and exposures, so hidden tax liabilities are priced in or covered.