The Thinking Blog

What does “real” due diligence mean? (Part 1 of 3)
August 29, 2010

When you are trying to persuade someone to do something for your business, you are going to go through some level of due diligence. I’ll get to what I define due diligence as in a moment, but I want to explain a few things first.

Think about this. If you were going to invest your money into a business, what things would you like to know before you handed over your cash? If you were going to lend your reputation to a company and participate as an Advisor, what information would you want to know, before you allowed the company to post your name and bio on their website? If you were going to license your brand or product to an individual or a company, what information would you want to know beforehand so that you would feel comfortable in doing so? These are questions that really form the beginning of what I will define as “due diligence.”

According to Oxford American Dictionary, due diligence means reasonable steps taken by a person in order to satisfy a legal requirement like buying or selling something. Well, this is a pretty bare boned explanation. Let me expand it just a tad further. Due diligence is a term traditionally used to reflect the analysis activities that happens during merger and acquisition activities. But with business relationships and agreements having become so complicated, the process now includes the evaluation of all aspects of the business.

So here’s my definition. Due diligence simply put is: the evaluation of all aspects of a business to insure that what you are being told you are buying, is in fact, what you are really buying. Now the word “buying” refers to “buy-in.” You see whether you actually buy the business, or you lend your reputation to the business, or you invest in the business, there is a certain “buy-in” that you do as you become involved in that business. Before you “buy-in” to anyone’s business, you must make sure that everything is as you are being told. This means you will have to research and verify nearly every aspect of that business including, but certainly not limited to: the management team backgrounds; market size; legal status of the business; product or service integrity; contracts; agreements and a host of other things that I’ll cover in my next blog by using a real world example. This will be the first of a 3 part series.

In the meantime, if you need a basic start as to the type of information you should be looking at before “buying-in” to a business, you can go to www.thinkubator.biz and download the free Due Diligence Assistant checklist.

Remember, think about what you are about to attempt. Consider all angles. Incubate your idea in your mind. Consult with people smarter and more experienced than you. Then, when you are prepared and ready, move forward and don’t look back.

Here’s to your success.