When to conduct a due diligence background investigation

Clock and Calendar Pages show concept of time

Lately I’ve been reading a lot about M&A and other deal-making processes. I’m learning who’s involved, what steps need to be taken before signing on the dotted line, and the risks involved at each step. What I find most interesting, though, is that due diligence is usually listed as the step taken just before signing the contract. It’s even suggested after you’ve contacted your target and perhaps shared proprietary information.

This timing might work for other types of due diligence like financial or legal. At this point, you need to verify numbers, legal entities, and operations, but – when it comes to background investigations – the sooner, the better.

That’s why, when clients ask when they should conduct their due diligence investigations into key individuals and companies – when they should start doing a little digging just to make sure – my answer is “Early and often.” Here’s why:

Why early?


Picture this scenario (and it has happened): You’ve invested time, money, and other resources into strategizing, evaluating, and the hard work of negotiating, and then – right before you conclude the deal – you decide to check out key individuals and companies. The investigation uncovers a history of bad business decisions. Or maybe your future business partner has an (ugly) criminal record or lied about their credentials. Wouldn’t you like to have this information earlier in the process, rather than later? Think about the lost opportunities, too. You’ve excluded other targets, while focusing on the one that looks good now. But do you have enough information to know if it’s a good fit, or if it’s potential for disaster?

Why often?

Many business deals don’t end at the contract signing. Afterwards, there’s often a transition or an ongoing relationship. Perhaps they’re managing your client’s investment, or they’ve just become your newest business partner. Do they have their hands on the money? Wouldn’t you like to know as soon as possible if a new issue comes up that could cause problems later? Are they experiencing financial difficulties? Any new stressors in their life? Not everyone is forthcoming, especially if they think you’re not watching. Surprise visits and online monitoring can help you stay informed.

Whether you’re in an early or later phase, adjust your level of due diligence to circumstances and level of risk. If you’re just checking out possible targets, and you’re not ready to obtain a signed consent form, for example, you can’t get an official verification of degrees and other credentials. But you can run an organized, directed search of public records and news sources – sort of an early warning system.

Is there something in someone’s past, or do they have an ongoing problem that could result in damaged reputations and bottom lines? Take a proactive approach, identify your level of risk, and remember to do your background investigations early and often.

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