Due diligence involves a thorough, in-depth evaluation of a business situation so you can make an informed decision and minimize risk. In other words, it means doing your homework. As a small business owner, doing your due diligence is necessary in a wide range of situations. Fortunately, these days it’s easy to research virtually any topic, as long as you stick with reputable resources.
One common small business scenario that may require due diligence is when you’re considering starting a business relationship with a vendor. In that case, your due diligence should include checking competitor’s prices to make sure you’re not overpaying, researching the vendor’s history to make sure there are no red flags, and even visiting the vendor’s brick-and-mortar location to see how the business is run and to meet the people behind the scenes.
Another common scenario that requires due diligence is selecting an insurance policy provider. Spend some time comparing rates and coverage, learning about exclusions and limitations, and reading the fine print of policies and contracts.
Due diligence is also a critical step for investors, who want to be as confident in their investment as possible before writing a check. Failing to research the people you’re investing in thoroughly, as well as their product or service, can lead to significant financial loss.
Performing due diligence is one of the best ways to protect yourself and your company from unforeseen, avoidable problems. Whether you’re buying out a competitor, hiring a new employee, or partnering with a local business, you must spend time analysing all sides of the situation before you make a decision based on concrete facts.