3 Top Tips for Conducting Due Diligence

This article is contributed by Keith Tully.

Due diligence process is one of the most important processes of the business world. Whether negotiating a small business deal or a massive acquisition, no contracts are ever signed until due diligence has been conducted. The primary reason for conducting due diligence is to protect business interests from frauds and conmen.

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Depending upon the nature of the deal, submitting to due diligence may be legally obligatory or voluntary. Either way, no company ever chooses to proceed ahead until the due diligence process is completed. It is one of the cornerstones of financial security in the modern marketplace. In addition to ensuring that the business parties involved in the deal are genuine, due diligence also allows businesses to take a closer look at each other’s accounting books. Companies are always trying to inflate their valuation and the due diligence process is a great way to ensure that a company is not ‘all talk and no go’. Due diligence has saved many companies from entering into deals that could have spelled log-term financial disaster. The due diligence process can be enlightening, but how enlightening depends upon the efficiency with which it is carried out. If the due diligence was carried out carelessly, the results could be very misleading. Here are 3 top tips to help conduct a much more efficient due diligence process:

Details are great, but look at the big picture:

As far as conducting due diligence is concerned, an eye for detail makes all the difference. When combing through almost never-ending financial spreadsheets, it is the minor details that are sometimes most revealing. Any blips in the company’s record, no matter how minor or major, can easily be overlooked within the flood of  routine details. Since these blips are hard to find, there is a lot of emphasis put on them.

Such details are sometimes great finds and it is always good to know as much as possible about a company or individual. However, problems can arise when these details are taken to be more important than they deserve to be. In business, details are great but it is the big picture that matters. Many investors have missed out on great investment opportunities simply because those conducting due diligence got hung up on a few details, while failing to see the big picture.

Everything that glitters is not gold:

There is no fool-proof method to conduct due diligence. We would like there to be one, but there isn’t. It is for this reason that companies with years of due diligence experience are so sought after. Due diligence requires many skills that can be acquired only with experience.

One of these valuable lessons is the instinct and knowledge about where to dig and how deep to dig. A patched-up business can look tantalizingly good after initial due diligence. However, breaking through the surface can often unravel the charade that some businesses hid behind. While conducting due diligence it is important to remember that there is no such thing as too much information; if there is something that looks like it is worth investigating, it would be foolish to just let it be.

Nobody gets to take a pass:

Whenever the word ‘due diligence’ pops up, people may automatically assume that it is a small company being taken over or entrepreneurs who are submitting themselves for due diligence. However, the big company or investors are also  always subject to due diligence. There are many ways a business may fail to deliver what is expected and all aspects must be covered.

factors to explore in due diligence

Nobody wants to do business with a company or person that may have shady financial dealings and the due diligence process is designed to expose such activities. Investors may think themselves to be above submitting for due diligence, but the reality is that they are not. Entrepreneurs should  keep a tab on where the funding comes from and due diligence helps keep a track of it. It is important to remember that no matter how big a business is, it is never exempt from the due diligence process.

If conducted properly, due diligence can make or break a deal, depending upon what it digs up. The important fact is that it prevents a business or individual being taken advantage of. By remembering these 3 simple tips, the due diligence process should be highly effective in avoiding business deals that are doomed to failure.

Author Bio: Keith Tully is an active blogger. He loves to write on topics related to business and gives tips for the same. His website http://www.realbusinessrescue.co.uk, helps provide business recovery advice that can be of great help to you.

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