What Is Due Diligence?

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What Is Due Diligence?

Recently, I had a client ask me about doing some background research on a potential business investment. When I used the term “due diligence” in the conversation, I realized from the response that while he had heard the term before, he wasn’t positive exactly what it referred to in context, so I thought I would explain that here.

Anytime you are considering making a business decision, you need to do your “due diligence” before making a commitment. Whether it is buying a business; investing in a business, company, or idea; going into business or partnering with someone; or even bringing an individual into a key role in your business, you should always do a thorough investigation of that individual or business (often both) beforehand.

So what constitutes due diligence? It means gathering and obtaining all the information you can about the subject (business or individual); discovering financial, business, and legal information; and evaluating any potential and associated risks involved in the deal, as well as having a full understanding of the current financials and future potential. All of these may have an impact on your final decision about whether or not you wish to move forward with a business deal.

If you are buying a company or business, you will want to have an accountant examine the company’s books, records, and taxes to make sure everything is as it was presented to you. With large companies, this is an expected, normal practice, and usually takes places with multiple lawyers and accountants as part of the process.

But with small businesses, especially in places like Texas, it is still not unusual to encounter million dollar deals that are executed on a handshake and an individual’s word. While some people are comfortable with that, today’s business person can help avoid a disastrous or costly business deal by obtaining information about the individual they are dealing with, and about the history of the business. That is where a private investigator can help.

Typically we will start by looking into the key person in the potential deal. We will dig into their background, looking for both personal and business related information about their past. Why personal information? As investigators, we know that rarely is the “key” piece of information going to present itself on a silver platter. Instead, we have to dig through mounds of information, stringing the pieces together. We look for personal information, criminal information, and civil and financial information. We use all that information to piece together a full picture of the individual with whom you are contemplating going into business.

We also pull up all of the information we can find about the business. Knowing about related assets, current and former principals, and similar information can be critical. If you need the financial records or books reviewed, we recommend using an accountant or lawyer, and we can connect you with quality people if you need a referral. But before you put your money, business, or reputation at risks, you should always know as much as possible about the person or people with whom you are about to do business.

The first step involves conducting research, sifting through information and piecing together all of the pertinent data. Often that is all we do, because our client wants the research to be done discretely. Occasionally, we need to travel to courthouses or county records departments to see what the original records state. If more digging needs to be done, we can make phone calls or conduct personal interviews, but this is done only with a client’s consent, usually when all parties are aware that the background is being reviewed.

Because of Federal and State laws, much of the personal information that used to be readily available to a regular citizen is no longer legally available.

Private investigators can still gain access to information that the general public cannot. Our training, licensing, and knowledge of permissible uses, as well as our professional confidentiality, allows us such access. At Owens Investigations, we have been certified and approved by several leading proprietary database providers. A representative of one of these companies conducted a site investigation, making sure that we are an established business, that our building and office was secure, and that we maintain appropriate physical and computer security while we use and store the information obtained.

These aren’t the same online databases that pop-up when you do a Google search for a phone number or a name. Those databases are full of errors, stale information, and most importantly, give you no context for the data. In fact, they may not even be legal. Recently, one such company was hit with a hefty fine from the federal government for their business practices. They certainly contain a lot of data, but a consumer needs to be aware of what they are getting from these types of sites.

So before you make a business deal or decision, make sure you do your “due diligence.” Fortunately, you have “connections” who are private investigators. Contact Owens Investigations today and let us help you find out what you need to know!

Keith is the owner and founder of Owens Investigations.

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