"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:
- 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.
- 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.
- A team of legal and financial professionals — including lawyers and accountants — should help you perform the due diligence.
Learn from the expertsA number of experts have books that take you through the process step by step.
Prepare a list of concerns and issuesIt helps to have a checklist in hand before beginning to perform due diligence.
Use a spreadsheet approachDiomo offers a spreadsheet and formula to analyze and score businesses components such as products/services, sales, contracts, employee replacement issues, etc.
Hire a due diligence serviceSome firms will run a background check, locate assets, verify property value and do additional research using public records to do due diligence for you.
Set up an online data roomGo 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.
Access proprietary databasesThe World Wide Web has a host of databases that can help you research a company
Get the Latest Tips and NewsAccess blogs and forums that discuss common stumbling points and missteps in conducting due diligence
- 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.