In business and our personal lives, due diligence generally means reasonable care and caution, or proper action called for in a specific instance, especially those that help prevent harm or risk.
Due diligence could be exercised when evaluating whether to get involved with a potential business partner. Checking out a potential business partner/company for potential red flags could save untold harm or risk.
In some cases, due diligence can be a level of care, judgment or prudence that one might be expected to perform. Not just for you personally but maybe for shareholders or investors.
A few questions to consider are:
- Have you checked available public records on the corporate entity?
- Have you checked the company history?
- What is the background of potential business partners or vendors?
- Does the person you are dealing with have the credentials that they claim?
- Have you reviewed corporate P&L statements?
- Has a company audit been performed?
Some of the effects of not performing due diligence might include:
- A bad investment may be made.
- Fraud could go undetected.
- An acquired business could end up placing a current business at risk.
Generally, the term due diligence is used in a corporate setting, but it could also be applied to a potential partner/mate. Are there things in their background that would cause you to reconsider a relationship with this individual? What are the risks in this relationship?
As has been said, the best predictor of future behavior is past behavior.
Things to consider in this instance might be:
- Is the person who he/she says they are? Are they being truthful?
- Do they have a questionable background?
- Do they have a criminal background or protective orders?
- What do you know about the individual’s previous relationships?
- Are there financial concerns to be considered? (liens/judgements)
- How trustworthy is this individual?
Let us help gather the facts that will aid you in making an informed decision.