The Importance of Due Diligence

Due diligence is a little known term that could spell the difference between business success and disaster. This article finds out why.

Only a fool would buy a car without first opening up the bonnet to take a look at the engine and taking a test drive. A buyer with a little more knowledge on cars might also turn a finely tuned ear to the purring of the engine, listening for any of the tell-tale signs that the head gasket might be about to detonate, or that the timing belt is dancing the tango when it should be doing the foxtrot.

Checks shouldn’t stop there. A quick look at the service history will tell shed light on the minor hiccups the vehicle has suffered from in the past but for more serious flaws our buyer must delve a little deeper.

Checking the chassis serial numbers, for example will offer clues as to whether the vehicle is a rare one-off model, or something that’s been welded together using the front half of a Delorian DMC-12 and the rear of a 1982 Robin Reliant. (That may look like one extremely cool automobile but there’s no guarantee she won’t break up into her composite parts at the merest sight of a pothole.)

These are basic checks that could spell disaster if not carried out

Believe it or not, whilst consumers are quite prepared to carry out basic checks on everything from cars to coffee makers, it’s often a different matter when buying a business.

In business parlance the tyre kicking that takes place before the purchase of a business is referred to as due diligence. Studiously poring over the company accounts is akin to taking a look beneath the bonnet. But to get a real idea of whether the prospective business could fall apart quicker than a Delorian Reliant, it’s necessary to delve a little deeper.

This is increasingly becoming the realm of private investigators, who often hired to carry out commercial due 企业信用调查 diligence investigations prior to a business acquisition, merger or takeover.

The investigator may look at the background of directors for evidence of involvement in criminal activity or carry out an audit to check that assets or the business’ worth hasn’t been exaggerated and should even be able to obtain the company’s credit report.

Advanced due diligence investigation could incorporate markets reporting. A multi billion pound natural gas company could seem an attractive position until the prospective buyer realises its centre of operation is a country in which an incoming socialist dictator is threatening to nationalise its energy industry. At that point it begins to look more like our famous Delorian Reliant.

A personal finance company might seem like a good bet until our private investigator uncovers a pending litigation likely to cost the company hundreds of thousands of pounds in fines and damage its reputation irreparably.