Looking for customers, providers, and partners is essential to the development of any professional activity. Yet, for your business to remain prosperous, you should always be aware of your environment. This includes the necessity of knowing as much as possible about your current and potential partners. While all professionals want to keep toxic individuals and problematic entities away from their business, not everyone knows how to do it in practice. This is where due diligence comes in light. To understand its concept and importance, check this Due Diligence Made Simple guide.
What is due diligence?
Due diligence is a concept of getting to know the people and organizations you consider working with, before you actually do. Ideally, this is something everyone should practice when doing business. Due diligence can cover a dozen of aspects. The most important ones are: simplified due diligence (basic identification process), accounting and finances evaluation (viability of an entity), legal assessment (compliance with laws and regulations), and brief analysis of the shareholder structure (determining the actual owner of an entity). With those simple verifications, you will already avoid a lot of potential issues. Remember to keep documentation of your investigations and findings: in case things go south, you might end up in a situation where proving your good faith will help you out.
Do not be paranoiac but beware
At home or abroad, you can always be a subject to situations when individuals are getting too close and want to do business with you. Depending on multiple factors, including your industry and location, they might only be inquisitive characters or curious competitors. But they could also turn out to be subversive agents, people involved in illegal activities or internationally blacklisted individuals or entities. Carrying out due diligence on your new acquaintances will never be superfluous and should always be of a strategic matter, even when you are not particularly suspicious.
New partners screening
When you search for potential partners, you first think of the entities and individuals with whom you already had some experiences. Not only you can trust them, but also finding someone in that “pool” would spare you much time. However, you will rapidly notice that working exclusively with people and companies you know has its limits. When you realize that, you will start resorting to external solutions. At that moment, you get to meet new persons and discover companies you have never heard of.
The decision to conduct investigations on individuals and companies is first a matter of instinct. Experience teaches you what feels right and what feels wrong. But in the end, you never know who you are actually talking to. Therefore, you should never fail to execute some due diligence before entering in a new partnership with anyone, be it an individual consultant, a smaller firm or a multinational corporation.
Do not lower your guard even when dealing with an organization of international reputation. Keeping your information about them up-to-date should never be considered a luxury. As the recent bankruptcy of Thomas Cook Group has shown, even a 178-year old company generating more than $10 billion a year can collapse, bringing with them smaller businesses who will never see their invoices honored. Like many other aspects, financial prosperity shall never be taken for granted, as the history of an organization does not necessarily reflect its current position.
Due diligence is not only about making sure that your associate is an honorable person or that the organization you are dealing with is financially healthy: the world evolves, just like markets and businesses. New top managers are joining, new policies and directions are taken, and they might not always be aligned with your interests. Not to mention the impact that worldwide events can have on an entire industry or a geographic area. Hence, within the framework of an effective due diligence investigation, intelligence gathering and media monitoring have a crucial role.
Why due diligence matters
Remember: your approach to due diligence cannot rely on one-shot investigations. Information is not static but dynamic: it evolves, for the best and the worst, and will impact your business in one way or another. Stay apprised, be agile, and react accordingly. The flow of information should never stop coming to you and it is wise to keep it regularly analyzed. Indeed, what was true yesterday might not be true today. Due diligence may seem simple, but if you have no intelligence gathering capacity, have someone do it for you. In no case you can afford to neglect it. As the proverb says: “Scientia potential est” – Knowledge is power.