"Due diligence" means doing your homework about the other party before entering into a business deal. You need to be diligent about investigating the claims made by your potential partner about the market, the service or the product, his finances and more.

When performing due diligence, bear in mind that:

1. It is a long and arduous process and could take weeks. Make sure your potential partner gives you the time needed to conduct the research.
2. You're going to have to ask tough questions, and be dogged in seeking out documents about the company or person. Don't be afraid to ask your potential business partner pointed questions, such as whether the company has run afoul of regulators or has been the subject of a criminal investigation.
3. A team of legal and financial professionals — including lawyers and accountants — should help you perform the due diligence.

Action Steps
The best contacts and resources to help you get it done

Learn from the experts

A number of experts have books that take you through the process step by step.

I recommend: Read Strategies for Successfully Buying or Selling a Business, or Accomplishing Due Diligence Handbook.

Prepare a list of concerns and issues

It helps to have a checklist in hand before beginning to perform due diligence.

I recommend: Check out Sahakian's Due Diligence Checklist, The Complete Due Diligence Checklist and Strategy Guide or BirdsEye.

Use a spreadsheet approach

Diomo offers a spreadsheet and formula to analyze and score businesses components such as products/services, sales, contracts, employee replacement issues, etc.

I recommend: Access TheDiomo Business Assessment™Valuation Spreadsheet.

Hire a due diligence service

Some firms will run a background check, locate assets, verify property value and do additional research using public records to do due diligence for you.

I recommend: KnowX specializes in in this kind of research .

Set up an online data room

Go online to set up a data room, a central secure location where multiple parties (corporate business developers, investment bankers, lawyers, accountants, and consultants) can review information. It can be easier than using paper or e-mailing information.

I recommend: Merrill DataSite offers secure data room services.

Access proprietary databases

The World Wide Web has a host of databases that can help you research a company

I recommend: Hoover's and Moody's Investor Services collect financial information, published articles and research about companies.

Get the Latest Tips and News

Access blogs and forums that discuss common stumbling points and missteps in conducting due diligence

I recommend: Learn the latest news an get advice from those who have been through due diligence at BizOp, LawGuru.com, FreeAdvice, LaborLawTalk.com and Counsel.net.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Start early — begin researching a company the moment you become interested in it.
• •  Stipulate the time period for due diligence in your contract with your partner
• •  Pick up the phone and call business associates of the other party and ask about the business
• •  Talk with your potential partner's competitors.