The complete guide to due diligence

We’ve all been there. A promising vendor profile lands on your desk with a tight deadline to onboard them. The vendor looks solid, their references sound good, and everyone’s eager to move fast. So you skip a few steps in the due diligence process. What could go wrong?

Plenty, as it turns out. Those small shortcuts, such as not digging into who owns the company, accepting outdated security certificates, or glossing over their financial health, have a way of snowballing into tomorrow’s headache, complete with unexpected costs, compliance issues, and some very uncomfortable conversations with leadership.

Your vendors aren’t separate from your business but part of your risk landscape. Their mistakes become your liabilities, their compliance and security gaps become your vulnerabilities, and their reputation gets tied to your brand image.

Smart due diligence recognizes this. It matches the depth of investigation to the actual risk level. It verifies claims instead of taking them at face value. And it doesn’t stop at signing the contract — it keeps monitoring what’s happening over time.

In this blog, we will learn everything you need to carry out due diligence to make your buying decisions more foolproof. This will bring real value to your business while minimizing risks.

TL;DR

• Due diligence is about protecting your business from risks posed by any nth party associations. 
• Due diligence involves scrutinizing financials, compliance attestations, control performance, and security policies. 
• Don’t stop at evaluation, keep monitoring. Use automation to auto-discover vendors (including shadow IT tools), centralize evidence, map risks to controls, and continuously monitor your threat environment.

What is due diligence?

Due diligence involves investigating, verifying, and scrutinizing vendors’ security practices, financial health, and service quality before onboarding them. It includes reviewing their SOC 2 attestations, penetration tests, and their performance record to ensure they don’t pose any operational, security, or financial threat to your business. At its core, it’s a critical step in mitigating risks and minimizing disruptions to your business with informed decision-making.

Without proper due diligence, you make business-critical decisions with your eyes closed. You don’t want to be in a situation where you have onboarded a vendor and you suddenly discover financial liabilities or an ongoing litigation that puts your reputation at risk, or worse, that their data processing policies pose a compliance risk, turning a smooth integration into a technical nightmare that’s bleeding money and time.

What is the purpose of due diligence?

Due diligence helps businesses make informed and prudent decisions that safeguard them from potential threats or costly surprises. It gives businesses an opportunity to assess the risks and liabilities associated with an investment or a partnership. Based on these assessments, companies can then negotiate agreements that clearly define ownerships, federate accountability, outline performance metrics, lock in costs, and codify security responsibilities to minimize risks down the road.  

In practice, this means digging deeper than the glossy pitch deck or polished compliance attestations to evaluate the threats they bring into your system. It’s about forcing the uncomfortable questions upfront before regulators, auditors, or angry shareholders ask them on your behalf.

Here are the five core purposes of due diligence: 

• Verify claims: Verify that the provided documents, attestations, and reports are correct and match available public records. 

• Estimate risks and threat vectors: Uncover any liabilities, security gaps, or compliance issues that can ultimately become your liability. 

• Strengthen compliance: Ticking off the boxes required by security compliance frameworks like SOC 2 and ISO 27001.

• Gain leverage: Finding out information that gives you leverage to dictate terms and negotiate agreements that benefit your business.

• Build confidence: Ensure decision-makers and stakeholders that their trust isn’t misplaced.

What are the core principles of due diligence?

At its core, due diligence isn’t about flying blind on guesswork; it’s about following the principles that make any business investment, decision, or partnership iron-clad. These principles work together to ensure oversight and mitigation so you are never caught by surprise.

Here are the core principles of due diligence to keep in mind:

1. Thoroughness

A review only has value if it is thorough. This means looking at financial records, legal status, ownership details, compliance history, and operational strength. A partial check is almost the same as not checking at all.

2. Independence

Information must be confirmed through reliable sources. Relying only on what a supplier or partner claims without verifying creates gaps and leaves you vulnerable to hidden blind spots.

3. Consistency

Every partner or acquisition needs to undergo due diligence. Skipping steps in some cases and not others opens gaps, and those gaps bring risk.

4. Documentation

A process is not finished until it is recorded. Keeping notes, reports, and supporting material provides proof of compliance and offers protection if regulators raise questions.

5. Proportionality

Not all deals require the same depth of review. The scope should match the level of risk. Higher-risk matters deserve deeper investigation, while lower-risk ones may only need a lighter review.

Because in the end, due diligence is all about shifting from a mindset of cutting corners to acting with discipline. 

Prevention and mitigation

This principle is all about establishing controls, policies, and response mechanisms that prevent an incident from occurring and contain the damage when it does. 

A business may secure its networks, digital assets, cloud, and servers, but new cyberattacks evolve. A company may schedule inspections, yet human errors creep in undetected. The challenge isn’t just avoiding risk but about being ready when the unexpected happens.

The types of due diligence

Not all diligence is the same tool. Each type answers a different risk question. Pick the right mix, and you will see the whole picture. Because when you match the correct type of diligence to the kind of risks the vendor can expose your business to, everything aligns, from your mitigation policies to controls. You start seeing different threat vectors, the relationship between different risks, and the complete story of a business decision to partner with a vendor.

But pick the wrong mix and you end up chasing problems that don’t matter while the real issues hide in plain sight. This section maps the main types, what to probe, and why it matters on the ground.

Here are the types of due diligence you might need to conduct to de-risk your business investments and vendor partnerships:

1. Financial Due Diligence

The financial report of a company reveals many things. But it doesn’t always tie directly to the risks it can pose for your business. Your job, as the owner of due diligence and compliance, is to make it speak clearly so your business can discern if a given opportunity is worth investing in or not. 

You can uncover hidden threat vectors by analyzing:

• Earnings call 
• Tax returns 
• Debt obligations
• Liabilities and financial projections. 

Financial due diligence determines if you’re investing in an opportunity — or just buying into someone’s problems. Because a financially weak partner can disrupt your supply chains, cause unforeseen issues, and pull you into compliance issues when it cuts corners. 

2. Information Technology Due Diligence

You need to conduct this due diligence if you are acquiring a business, and you need to understand how secure their data is and if their tech can support your ambitions of scale. Because today, every modern business is a tech business. IT due diligence shows you what’s under the hood — and whether it’s duct-taped together or built to scale.

• Evaluate their security policies. You want to know if they have been compliant or not, if the data is currently vulnerable to breaches, or if it is exposed unnecessarily. 

• Examine infrastructure. Are they Cloud-based or on-prem? 

• Audit software licenses. Are they compliant? Or one lawsuit away from being shut down?

• Check for integration risks. Answer if their systems can plug into yours. Or will it need Frankensteining connections? 

• Evaluate scalability. Will their tech break the moment you grow?

Because you’re not just partnering with a vendor or simply acquiring a business’s code, you’re inheriting everything it touches—the tech debt, compliance gaps, security failures, and accountability to keep customer data safe. 

3. Regulatory Compliance Due Diligence

This one matters most in high-stakes industries, such as finance, healthcare, crypto, SaaS, or consulting. Before you trip over it, you need to know where the red tape is.

You need to review:

• Audit licenses and certifications. Dive deeper and check if they are active, expired, or falsified. 
• Review their compliance reports. You might want to consider frameworks like SOC 2, IS027001, NIST, HIPAA, and PCI-DSS. 
• Investigate their policies for additional scrutiny. Ensure that they have controls that can enforce them correctly. 
• Investigate prior violations. If yes, how long did it take them to notify the breach and contain the damage? 

Regulatory missteps don’t just result in fines. They can bring down the entire business and anyone who partners or invests with it. 

4. Cybersecurity Due Diligence

This involves thoroughly investigating their cybersecurity posture by evaluating mitigating controls, data security policies, auditing system logs, and continuously monitoring system performance. 

Here’s how you can do this:

• Test incident response plans. Evaluate if the business can contain damage during an incident. Check for network segregation, data encryption policies, server hardening, MFA, and IAM controls.
  
• Review security policies around encryption, backups, access control, and how they are tied to controls. Do these policies meaningfully translate into security or require patching?
  
• Look at how the organization handled past breaches. What were their response times? How did they protect the interests of their customers and their data during the breach?
  
• Assess whether they are compliant with security standards such as SOC 2, GDPR, HIPAA, NIST, PCI-DSS, and more. 

This isn’t adding friction. It’s about assurance, protection, and prevention from incidents. One breach can cascade into headlines, lawsuits, and headaches for the leadership.

5. Vendor/Third-Party Due Diligence

Vendor due diligence examines the risks associated with working with new or current vendors, identifying any concerns early on. However, third-party due diligence can go a bit further; it examines the risk levels associated with potential business partners, including vendors that are part of those partners’ networks.

You can do this by:

• Evaluating your vendor’s security and compliance posture 
• Evaluating their vendor management policies and third-party risks in their network
• Assessing their financial posture to determine if they can become a liability or cause disruptions in the supply chain

This type of review supports better control over supply chain risks. It also helps ensure vendors are dependable, follow relevant regulations, and meet contract terms. Plus, it offers a clearer picture of how well their operations are set up.

6. Customer Due Diligence

This is all about verifying that your customers aren’t utilizing your services or tools to enable illegitimate activities. It involves verifying your customers’ identities, understanding their risk profiles, and monitoring their activity to ensure they comply with anti-money laundering laws. 

• Bankes and financial institutions are required to perform KYC checks on individuals. 
• Identity documents like government-issued IDs need to be cross-checked with databases. 
• Third-party background checks can be conducted to ensure legitimacy. 
• Rigorous continuous monitoring is required for sanctions screening, transaction tracking, and flagging any anomalies. 

7. Legal Due Diligence

Legal due diligence ensures the legality of relationships with a particular company or a vendor. This involves negotiating and reviewing contracts to:

• Confirm who owns what, who owes what, and who can dictate terms.
• Trace the paper trail — charter to contracts, IP to people — to see if rights match reality.
• Demarcate the red lines that change price, structure, or exits.
• Examine employment agreements, compensation plans, labor disputes, anti-bribery standards, and compliance with relevant regulations. 
• Verify if any pending lawsuits are putting the relationship or transaction at risk.

Legal experts evaluate possible risks that may affect the success of investments, transactions, or collaborations. This form of due diligence aids in uncovering legal risks like ongoing lawsuits, compliance with regulations, and breaches of contracts

The due diligence process

You don’t sign a deal because it feels right. You sign it because every line, asset, and risk has been verified, logged, and stress-tested. That’s due diligence. It’s not paperwork, but assurance and protection.

Whether you’re buying, selling, advising, or auditing, the process is your insurance policy against mishaps. When done right, it enables your business to grow without fear. When rushed, it buries you in liabilities.

Here’s how professionals walk the process of due diligence, systematically, discreetly, and thoroughly:

1. Define the scope

When defining the scope, the mantra is to start with clarity and end with precision. To do that, you’ll have to limit and define the action items to which you can apply empirical rigor.

You can’t verify everything, but you can align the scope to the things that matter most to your objectives, like acquisition, merger, compliance, investment, and exit strategy. You flag what’s most essential:

• Legal exposures
  
• Financial irregularities
  
• Operational dependencies
  
• Compliance and security
  
• Regulatory blind spots
  

This phase isn’t the one to skip; it will help you right-size your effort, prevent scope creep, and save countless wasted hours. For example, If the target company handles PII, cybersecurity moves from “important” to “critical.”

2. Secure the data

You must have heard about the CIA triad for security. For due diligence, it goes beyond; it’s about confidentiality, integrity, availability, and auditability. The due diligence process needs to be secure, ensuring no vendor or business partner data is accessed without authorization.  

Documents are requested and secured with the help of a structured checklist, often categorized by:

• Corporate governance
  
• Compliance certificates
  
• Pentest reports
  
• Policy documents
  
• Data flow diagrams
  
• Financial statements
  
• Breach and incident history
  

Everything needs to flow into a secure virtual data room with access controls, version history, and activity logs. 

3. Conduct Preliminary Screening

The goal here is to surface high-risk gaps early before burning hours on an unviable acquisition.

You’re screening for:

• Outdated security policies, or worse, none at all
• Absence of recent third-party audits like SOC 2 or ISO 27001
• Lack of documented incident response plans
• Missing vendor security reviews, especially if you’re dealing with a SaaS platform
• Absence of compliance attestations like GDPR, HIPAA, or PCI-DSS

If any of these are missing or vague, escalate for deeper review or walk away.

4. Deep dive analysis (Multidisciplinary Review)

​​You’re not just looking for past breaches. You’re looking for a culture of negligence. Or excellence. Here’s how you can evaluate it by looking into areas like governance, policies, and risk management:

Domain	What You’re Looking For
Governance	Security leadership, reporting structure, accountability, and board oversight
Policies	Acceptable use, data handling, BYOD, password policies—updated, enforced, acknowledged
Risk Management	Risk registers, threat modeling, vendor risk assessments, and ongoing monitoring
Access Controls	Role-based access, MFA enforcement, privileged access logs, orphaned accounts
Data Protection	Encryption (in transit & at rest), DLP tools, data classification procedures
Incident Response	Documented and tested response plans, post-mortem logs, breach notification templates
Compliance	Status of key frameworks: SOC 2, ISO 27001, HIPAA, GDPR, CCPA, etc.
Training & Awareness	Annual training completion rates, phishing simulation results, and culture of security

Everything gets logged: system evidence, screenshots, compliance certificates, vendor agreements, penetration test reports.

5. Present your assessment questionnaire 

No hand-waving. No “we’re working on it.” Just straight up follow up with to-the-point RFIs asking for:

• Results of the last internal audit for SOC 2 controls.
• The previous penetration test results? Information on who conducted it? 
• Who owns vendor risk? How are third parties approved?”
• Evidence of IAM controls like MFA enforcement and any exceptions granted.
• What tooling monitors lateral movement inside your network?

Track responses. Assign flags. Watch for friction or inconsistency.

6. Final, security and compliance risk matrix and reporting

This is a step where you plot risk against access of likelihood of their occurrence, and the damage they would cause when they do. This way, you can assess risks on a spectrum between high and low. 

You summarize:

• Identified risk vectors
  
• Their likelihood of occurrence
  
• Their impact
  
• Residual risk after applying necessary controls to prevent, contain, and mitigate those threat vectors

This risk matrix now informs your mitigation efforts, contracts, and security milestones. 

7. Locking in the contract

Once you have identified the risks, it’s time to lock in the contracts, federate accountability, assign risk owners, and negotiate security commitments.

Based on the different risk profiles of the business or the vendor, you can tweak:

• Service price is relevant to higher remediation costs
  
• Contract length in relation to the validity of security and compliance certificates
  
• Covenants for post-close compliance improvements

For example, you can leverage clauses mandating your vendor to be SOC 2 compliant in 180 days or offering a 50% discount on the deal value. It’s all about baking in protections and balancing security and financial liabilities. 

Carry out hassle-free due diligence in your organization with Sprinto

Sprinto turns vendor risk management into a clear dashboard. Not noise. Not guesswork. You see real risk and impact that’s backed with data. That too, all in one place because it unifies your vendor scores, criticality, their reviews, and ongoing monitoring on one dashboard. This way, it makes it easier to track your posture in real-time, identify anomalies, and launch mitigation plans. And when it is time for an audit, Sprinto keeps you covered through and through. It automatically maps risks to controls and frameworks, so your vendor risk assessments are always audit-ready by design. 

Are you worried about shadow IT? Just plug Sprinto into your stack, and it automatically scans third parties via SSOs, building a living catalog of vendors across your org as it discovers new vendors as they appear. The blind spots shrink, and surprises stop. Everything sits in one view for triage, review, and follow-up. 

The integration-first design also helps. It connects with 200+ cloud services, so evidence flows in, controls get monitored, and risk signals and compliance evidence always get picked up across Git repos, Azure configurations, and your systems. 

Continuous posture checks. Vulnerabilities and control drifts show up as they happen. Sprinto correlates checks across your stack and flags issues fast, so you fix risks before they turn into incidents. This goes beyond one-and-done testing. It’s always on.

FAQ

1. How do I conduct due diligence on third-party vendors?

Run a simple, risk-based process before you sign a contract. Define the vendor’s role, the data they touch, and the assets they can access. Float a security questionnaire to review their policies and control performance, review certifications like SOC 2 or ISO 27001, check financial health, and scan for any legal issues or breaches declared in the past. Document gaps, set timelines for resolution with dates, add strong contract clauses, and review the vendor’s milestones on a schedule. This is the core of third party risk management and vendor due diligence.

2. What due diligence is required for compliance audits?

Auditors want proof that your vendor risk process is repeatable and enforced. Keep a full vendor inventory, clear risk tiers, completed questionnaires, and dated evidence like reports and policies. Show how vendor risks map to your controls and standards such as SOC 2, ISO 27001, PCI DSS, HIPAA, GDPR, or CCPA. Remediate drifts quickly with owners and keep time-stamped logs of control performance, patches, and updates. This clean audit trail of evidence helps stay compliant and pass audits.

3. What documents should be reviewed during legal due diligence?

Focus on proof of identity, ownership, and cybersecurity reports. Review corporate records, cap table, and good-standing certificates. You can also verify privacy and security attestations, policies, insurance, and business continuity plans. This tight document review reduces legal risk in mergers, partnerships, or vendor selection.

4. What tools help automate vendor due diligence?

Use a TPRM or GRC tool to centralize vendors, workflows, and evidence. Automate questionnaires with templates and reminders. Add external risk signals like security ratings and attack-surface scans to stay on top of your supply chain’s security posture. Use contract lifecycle tools for clause control and renewals, and identity tools for least-privilege access. Pick solutions with APIs, role-based access, evidence versioning, and easy exports to speed vendor due diligence.