BUSINESS INTELLIGENCE & DUE DILIGENCE

A key step in ensuring the protection of your company. Due diligence checks are vital prior to beginning a working relationship with another business or individual. Without conducting proper due diligence, you run the risk of leaving yourself and your firm open to a variety of potential risks. Undertake thorough due diligence to ensure that you know exactly what you’re getting into.

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What is Due Diligence?

Due diligence revolves around conducting checks into all aspects of a business or individual/vendor you are planning to work with. It is done to make sure that you are protected from possible reputational, regulatory, and strategic risk; to ensure everything is above board and to avoid the possibility for any potential reputational damage or even prosecution.

When conducting a due diligence check, there are a wide variety of potential things you may wish to check and assess depending on your industry and exactly what you are looking for. The most important aspects widely covered during due diligence include reviewing the financial information, performance, and forecasts of a party; investigating the current market position of a business to establish current market standing; a firm’s current operation to assess its potential for upscaling; and the skillset, background checks, and susceptibility for bribery/fraud risk for prospective working relationships and stakeholders.

This is however, not an exhaustive list. Other examples of things often covered during due diligence include market data, a party’s offering, the legal and tax history of a company or individual, and more.

It is important to remember that when it comes to an investment the role of due diligence is not just to assess pros and cons. It is instead more like a property survey — you know if the house is a good fit, but you want to check the foundations for rot, that the roof isn’t likely to fall in on you, that the floor won’t collapse, etc.

It is worth remembering also, when it comes to a business acquisition/merger/investment, the benefits of due diligence do not just lie with the purchases, they can also extend to the seller/investee as a well done check could bring to light stark culture differences, goals, etc. that would, in the future, lead to the proposed dealings going awry.

The Importance of Due Diligence

The importance of due diligence should not be understated. The practice is an asset as it ensures peace of mind and minimises risk as much as possible. It acts to ensure that you are not getting involved with and investing a significant amount of time/money into the wrong place or person.

When it comes to acquisitions/mergers, the importance of due diligence will be tied to which side of the deal you are on. For buyers you gain additional comfort and security in any proposal — lowering the risk of making an uninformed poor investment. For sellers there is a possibility that the market value of their company could go up thanks to the unearthing of new information during the process.

Due diligence can also help to make sure legislation is followed, you’re not leaving yourself vulnerable to fraud, etc.

Potential Due Diligence Benefits

Potential due diligence benefits include:

The limiting of exposure to fraud
Better identification and assessment of risks, liabilities, and business issues.
Potential to minimise losses
Limit negative press and decreased reputation within your industry
Litigation as a result of one party failing to keep up with legislation.
Vet business acquisitions or hires before committing to the deal

Ultimately, forming business and working relationships can be compared to marriage. There’s a reason so few short notice marriages work. This is because neither party has had the time to do due diligence on each other. They haven’t had the time to notice the possible red flags — it is exactly the same in business.

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The Due Diligence Process

From establishing goals and document preparation, to analysis and booking a meeting to discuss findings, and the final due diligence reporting; there are multiple steps in the due diligence process. However, due diligence checks will greatly differ from business to business and person to person— the following steps are merely the most commonly seen.

Establish Targets

A valuable first step for virtually any project in business. Establishing clear goals will help you when you go on to distribute your resources. It will also allow you to take stock of exactly what you are seeking to get out of your due diligence check, to ensure a greater focus and ultimately greater success of the project’s future.

Preparation

To ensure that the due diligence process is able to go through smoothly and with minimal issues for both sides, it is important that the party being investigated prepares any relevant documentation or information, properly organises them, and makes them available to the party conducting the due diligence check.

Poor preparation from either side can quickly lead to the process being held up at best, or at worst it could even lead to the proposed deal falling through.

Information Review

The review process should, at least initially, begin as a two-way dialogue between the two parties involved. This will involve one party asking for any required documentation, timings to conduct relevant interviews, surveys, visits, etc. It is vital that the party being reviewed responds to any requests as promptly as possible.

Some of the most common aspects of businesses likely to be reviewed during a due diligence check are:

Business financial data
Company documentation
Business plans
Operation
Personnel

When conducting due diligence on a company, a majority of the process will consist of the organised review of each of these aspects of the business. When it comes to individuals you are more likely to look into their employment history, evidence of their compliance with legislation such as The UK Bribery act, and more.

This is likely the most important step in the process as it is where the reviewing party is able to formulate the core of their view on the other side in order to better make a more informed decision.

Question and Answer

Upon the completion of the main review portion in the due diligence process, one of the most important, and the final collaborative phase in the process should be a thorough question and answer stage.

This stage can be undertaken either throughout the due diligence process, as information is uncovered, or all at one time in a thorough dissection at a later date. This step can often be a long and difficult process, particularly if conducting due diligence on a business. This is because your questions are likely to be redirected to other people within the company before they are looped back. While a tough process — it is one that you should treat with the utmost respect and thoroughness.

Evaluation

Once all information and documents are gathered and analysed and all interviews, visits, etc. are conducted and completed, all parties involved should come together to share and evaluate findings. This can be done to allow the party conducting the due diligence to assess their position and decide if they wish to continue with the interaction.

How Inquesta’s Due Diligence Services can Help

Conducting proper due diligence is an important step in the process of acquiring or investing into another party or beginning a close working relationship with another individual. This is why you want to be able to be 100% certain that everything goes through as smoothly, as efficiently, and as accurately as possible.

Due diligence can help you obtain comprehensive information that enables you to make more informed decisions when hiring employees, contracting vendors, going into business with a person, or acquiring a business. It also allows you to properly vet stakeholders and partners, and comply with KYC requirements. Our team combines investigative due diligence and efficiency to gather, analyse, and report any vital information found.

Our dedicated team has decades of experience in supporting companies through the often complicated due diligence process. Get in touch today to discuss what Inquesta’s due diligence service can do to help or to book a free, no obligation consultation.

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Our Specialist Team

Our team of experts have been operating in, and supporting firms to conduct their due diligence check for decades — providing an experienced base for them to fall back on and providing much needed assistance and guidance throughout the process.

Steven Wiseglass

Director of Insolvency

A co-founder of Inquesta, Steven is a licensed Insolvency Practitioner with over a decade of experience in the field. He is a member of the Insolvency Practitioners Association, Association of Business Recovery Professionals (R3), and his insolvency licence is issued by the Insolvency Practitioners Association. In addition, he sits on the R3 committees of the North West Regional Committee.

Steven specialises in advising directors of small to medium-sized businesses, and has a wealth of expertise in providing the most appropriate advice whatever the firm’s circumstances may be. He has also been instrumental in helping company directors save their business and rebuild them into successful enterprises.

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Rob Miller

Director of Forensic Accounting

A co-founder of Inquesta, Rob Miller is a chartered accountant, a member of the Institute of Chartered Accountants in England and Wales (ICAEW), and a Practising Member of The Academy of Experts.

With decades of experience in providing specialist forensic accounting services, Rob has been instructed to assist with numerous cases — such as financial investigations, criminal defence and confiscation proceedings, commercial and contractual disputes, valuation matters, and much more besides. He has acted on behalf of claimants, defendants, and as a single joint expert.

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FAQs

What are the Different Types of Due Diligence?

Generally, all due diligence checks performed fall into three core categories. These different types of due diligence are legal, financial, and commercial due diligence. While these categories may be distinct in their nature, the best due diligence checks performed will ‘bleed into’ the other types. This is because aspects of one area can easily inform those of another.

What Does Good Due Diligence Involve?

Good due diligence will generally involve a series of ethics that should be followed by all parties. This includes:

Efficiency
Clear lines of communication
Accuracy and thoroughness above all
Egos do not get in the way
Both parties are protected
Assurances over legislation such as the UK Bribery Act
Gather, analyse and report critical information

Is Due Diligence a Legal Requirement?

Every company needs to properly vet its stakeholders and partners to comply with Know Your Customer (KYC) regulations. Due diligence acts to ensure this takes place and that your company remains protected against any eventuality. The Inquesta team will leave no stone unturned in the pursuit of ensuring that our clients completely comply with all relevant laws and regulations.

Who Does Due Diligence?

Any party can conduct due diligence. In a merger/acquisition it is generally done by buying parties prior to contracts being signed. However, circumstance depending, it can be in the best interests of either party. Regardless of which side, due diligence should be performed with assistance from an independent expert to guarantee the process is followed to the letter.

How Long Does Due Diligence Take?

How long the due diligence process takes will depend on the intricacy and level of detail and complexity of the particular situation. Generally due diligence will take between one and three or four months. However, in particularly complex cases, it can last up to nine months or even a year.