The Importance of Due Diligence

26 Aug 2015

Due diligence broadly means checking things out before you make any significant business moves or decisions. Such moves can include the buying of businesses or merger activity, or even the background checking of high-level new hires. 

In simple terms, the due diligence processes enable you to ‘do your homework’ or ‘to look before you leap.’ Due diligence is about being prudent, careful and sensible when seeking to change your business interests.

The historical application of due diligence has been in relation to the financial aspects of any potential situation. For example, prior to buying a company, a buyer would gain access to and examine a company’s books, to verify the financial status of that company.

Nowadays, due diligence is usually more widely applied beyond financial considerations, investigating and reviewing legal areas or people and the full commercial picture. An attempt to learn everything about a venture before you commit and invest. 

One method of due diligence slightly overlooked at the moment is checks upon potential new, high-level and high-investment hires. Obvious checks on right to work in the UK, proof of residence and on stated qualifications can only give a firm a small picture of their potential fit, only further checks can give greater piece of mind. Some of these checks could include a Social Media check, essential for modern times. This ensure no reference to illegal actives, comments of discriminatory or harassing nature or signs of dishonesty in work history. A business case review can put the feasibility of their business case to the test, ensuring any statements are viable, such as worth/size of following. These are just a couple of examples of ways due diligence could used with a new hire, ensuring a candidate can live up to expectation, as well as not bring the company into disrepute.

A proper and effective due diligence check therefore, goes way beyond a look at the books.

There are some basic points to consider and build into a due diligence strategy, that will fit for your purpose:

  • Are you confident to take on the due diligence processes on your own or do you now need to seek the advice and support of an external source?
  • How much time will be needed to complete a due diligence exploration?
  • How will you ensure co-operation within your target interest, giving you access to accounts, historical records, management, facilities and systems, planning and market intelligence?
  • Where else do you need to look for relevant information and feedback – stakeholders, customers, competitors, contractors, creditors and debtors, and regulators?
  • What are in place and of value in terms of intellectual property and goodwill?

Due diligence is an essential component in any significant decision. We believe that through due diligence, it is inevitable that you will find some ‘surprises’. It is better and almost certainly less costly if you find these before rather than after you have made your move. Better still speak to us and we can iron out any problems early on in the process.

Our established research team is more than equipped to deal with all forms of due diligence checks on all levels. Contact Us for more information.