Due diligence research is all about finding a balance between speed and opportunity. After all, someone once rightly said, "If you want to make a living, find a job. If you want to become rich, start a business." And there aren't many moments as exciting as the chance to get in on the ground floor of a business opportunity. There's a rush of adrenaline flowing through your veins, and the more credible the pitch seems, the more your imagination seems to fill in the blanks.
But your first major failure in business will quickly disabuse you of the notion of predictable, easy money. There are so many factors that go into a quality business that a polished, emotionally driven sales meeting can't possibly account for. Frankly, relying on a prospective partner to fully inform you in these modern times is foolish. 8 out of 10 new businesses fail every year - starting up a business is an incredibly stressful experience. So even if they have the best of intentions, when your money is at stake, you need to know your partner better than he knows himself.
That's where a skilled private investigator comes into play.
The Due Diligence Process
What's the number one factor in the success of a new business? Well, things like the overall economic climate and the specific industry in question can play a role, but the biggest factor is always the people involved, and specifically the leadership. That's why individual background checks can be so useful. A potential employee or partner with:
Domestic issuesPast history of shaky finances or bankruptcyHistory of criminal activityA low level of education
Can all potentially be red flags. There's no need to buy into the myth of the self-made genius college dropout, either. According to a Duke University study, the education level of a founder directly correlates to the rate of business profits, sales and employment. It's important to remember that genius doesn't create profit alone - commitment plays a massive role. It's important to be thorough - checking public records, speaking directly to past associates, and conducting thorough interviews with the subject.
Checking the Books
Due diligence is also done for many financial functions, most common of which includes:
Sale, purchase or starting a businessInvesting in real estateInvesting in companies' stockLending out capital
Research shouldn't begin and end with a background check. When you're buying into an existing business, you absolutely have to make sure that all the items and assets are as stated, and of the value quoted by the partner. Assessing the financial condition of a business is known as "financial due diligence," and if you aren't doing it right, you're doing yourself wrong.
The process of financial due diligence might look straight forward, but it isn't simple, and when a chunk of change is on the line, you need a professional's guiding hand. You can't possibly get a good assessment of a business by looking at an income statement, a balance sheet, and a cash flow statement. That stuff is a siren song to the misinformed.
Financial statements can be manipulated to show an ailing business to be a thriving one, and cost the buyer way more than the actual worth of business. Other than the financial statements, you need to check out tax returns - and you need to know what you're looking for. For starters, you'll need 3-5 years tax returns to get a fair idea about the sales of the business. It'll also help you see if there are any pending taxes to be paid that aren't incorporated in the financial statements.
An asset list should give you a clearer summary of what assets you will be acquiring at what value, outside of the complicated stated balance sheet, and you can get those values assessed by a third party. Apart from that, you should also assess intangibles such as employees, future contracts, any lawsuits, the stability of the top 20% of customers and the marketing material used in the company. A skilled professional will present all that information and more in an easy to digest due diligence report.
Inside The Margins
Operational due diligence is important too: it deals with elements like business continuity and disaster recovery planning, fraud and other irregularities, liquidity mechanisms, security of assets, and a legal review.
Operational research means looking into the mechanisms of a business, and those mechanisms aren't always on a spreadsheet. The right investigator will talk to every link in the supply line, from employees that directly interact with customers to the guys that bring the boxes in. We ask smart questions - and then we verify everything we've been told. This kind of thoroughness isn't just about scepticism or finding ways to bow out of exciting ventures - it's about spotting problems before they get unmanageable and making sure things run as smoothly as possible.
The Ultimate Goal
The ultimate goal of a due diligence operation is - making sure that a client is fully informed and comfortable when it comes to buying into a person or a company. How long does that take, and how long does a due diligence report need to be? As long as it takes.
A report that is too shallow can lose important details that could impact the bottom line. But as any businessman knows, taking too long to strike brings dangers of its own. The right balance will ensure a successful due diligence operation.
At Huntting PI, we work with a client and find out how quickly we need to act to maximize depth of information and speed of investment for all of our due diligence operations.
It's a situation that's unique for each industry and each client. The smartest and simplest way to get the right answers is to get a consultation, and we're more than ready to give you an overview. Visit our website at http://www.privateinvestigatorservices.org/, and we'll give you a no-cost, no-pressure consultation.
ليست هناك تعليقات:
إرسال تعليق