What Does Due Diligence Mean for Entrepreneurs?
When an entrepreneur is looking to buy a business or an asset, they should understand all aspects of the investment and industry they will be participating in.
But how does the entrepreneur gain this insight?
By performing due diligence.
Before completing the transaction, the investor needs to thoroughly understand the big picture to move forward with the project confidently.
So what exactly is due diligence?
What is Due Diligence?
Due diligence is a process investors and entrepreneurs use to assess the risks of an investment and determine its worthiness. Due diligence is typically completed before the final decision is made to move forward with a project, transaction, or investment.
The due diligence process helps entrepreneurs make up their minds about an investment and move forward, wait for better timing, or remove themselves from consideration for a project based on their findings. [1]
Due diligence is often one of the final stages in a significant move on a project. While the process may include additional research, due diligence is a way to verify the accuracy and conclusions of previous information obtained and “dot all the I’s and cross all the T’s” when making decisions on any investment.
What to Look For
Entrepreneurs need to look into many things when conducting due diligence. That list may vary depending on the complexity of the potential transaction and the type of asset the investor or entrepreneur is looking to acquire.
If purchasing an existing business, entrepreneurs must look for accurate and consistent information regarding the operation’s financials, employees and organizational structure, market position, legal documents, tax records, inventory, infrastructure, advertising, history, reputation, and more.
The due diligence process to purchase an existing business should also reveal additional assets and liabilities such as loan and debt obligations, partnership agreements, pending lawsuits, other legal matters, etc.
Finally, entrepreneurs must also carefully scrutinize for any potential hidden or previously undisclosed issues that could undermine the project during the due diligence proceedings.[2]
Generally speaking, due diligence should be performed before committing to move forward with any potential investment.
How Do Entrepreneurs Perform Due Diligence?
Due diligence is a process that each entrepreneur can choose to perform in their own way. While there is no one “right” way for an entrepreneur to perform due diligence, the ones who seek out assistance in the process are the ones who achieve the best results.
While entrepreneurs may have a good idea about what to look for and how to find it, they are best served by relying on a team of experienced business professionals and legal experts to guide their process. For example, a CPA and corporate attorney are typically involved in the due diligence process. Depending on the investment, other professionals may be involved as well. These experts know what questions to ask and how to obtain the information the entrepreneur needs to ensure that the due diligence process will be most helpful in determining if the investment is worth pursuing.
Here at Visa Business Plans, we have helped thousands of clients purchase a business, real estate assets, or participate in any investment of their choice by providing the necessary knowledge to make an educated decision, including performing due diligence. So if you are wondering if a potential investment makes financial sense, call us today. We can provide you with facts to help you move forward.
Visa Business Plans is led by Marco Scanu, a certified coach from the University of Miami with a globally-based practice coaching Fortune 1000 company executives, entrepreneurs, as well as professionals in 4 different continents. Mr. Scanu advises clients on turnaround strategies and crisis management.
Mr. Scanu received a bachelor’s degree in Business Administration (Cum Laude) from the University of Florida and an MBA in Management from Bocconi University in Milan, Italy. Mr. Scanu was also a Visiting Scholar at Michigan State University under the prestigious H. Humphrey Fellowship (Fulbright program) with a focus on Entrepreneurship, Venture Capital, and high-growth enterprises.
At present, Mr. Scanu is the managing partner and CEO at Visa Business Plans, a Miami-based boutique consulting firm providing attorneys and investors with business planning services in the areas of U.S. and Canadian immigration, SBA loans, and others.
