What Exactly Is A Due Diligence Investigation?
What is due diligence?
Due diligence is the process of looking for any hidden liabilities before you enter into a contract with another individual or company. A professional due diligence investigation ensures that you have the information you need regarding the benefits and risks of a transaction before making a major decision.
When Is Due Diligence Needed?
Due diligence is called for whenever an individual or company enters into a high-stakes transaction.
For example, if your company is considering acquiring a piece of real estate, purchasing another business, or hiring a job candidate to fill a top position, a due diligence investigation can uncover information that might not be readily available. Companies may also benefit from investigating potential clients, overseas business partners, and intellectual property.
What does A Due Diligence Investigation Uncover?
A due diligence investigation probes deeply into the history of a business, property, individual, or other subject. An investigation can uncover any illegal or improper activity that has been suppressed. It can reveal a history of litigation that the subject was involved in in the past. It can also provide in-depth information regarding a subject’s finances, past performance, client history, reputation, and anything else that could be a liability.
Some specific examples of liabilities that an investigation might reveal include:
A history of financial problems, such as bankruptcies and foreclosures
A history of litigation or accusations of fraud
An undisclosed affiliation with an associate with a poor reputation
A history of overseas human rights violations
An individual’s criminal history
What Does The Process Of A Due Diligence Investigation Involve?
The process of a due diligence investigation has three stages:
The process begins with a discussion of the goals of the investigation. It’s important to begin with a clear understanding of what the client hopes to accomplish and what types of risks could pose the greatest liability.
Once goals are established, the investigator will conduct the necessary research, investigation and analysis.
Finally, he or she will present a report detailing all the information that was uncovered and highlighting any potential areas of concern.
What Kind Of Research Is Involved?
The methods of research will depend on the subject and the objective of the investigation.
Investigators who are looking into the trustworthiness of a company, for example, will research the company’s background by looking at public records and audit reports, interviewing employees and clients, performing asset searches, doing mystery shopping, and even conducting surveillance.
If the subject of the investigation is an individual, the investigator will research public records and interview associates.
The following are some of the things an investigator may look at during due diligence research:
Employee data
Company history, including media research
History of sales and acquisitions
Debt and equity
Assets, including real and intellectual properties
Inventory
Professional licenses
Information systems, marketing, and compliance audits
Litigation history
Sex offender registries
Bankruptcy records
Political contribution records
What Are The possible objects Of Investigation?
Due diligence investigations can be grouped into a number of different categories, depending on their purpose. The following are just a few of the most common types of investigations:
A Business
A business background investigation is important if you’re planning to acquire that business, invest in it, or enter into a relationship with that business as a buyer, vendor, client, or partner. It’s essential to know how well the business is performing, who its leaders are, and whether there have been any past issues with debt, taxes, regulatory compliance, or litigation, to name a few examples. A due diligence investigation can uncover details that a business may not have disclosed.
A Prospective Client
Businesses that serve clients need to know that their prospective clients are reliable and honest. Accountants, financial services providers, recruiters, law firms, and others risk not only income but a loss of reputation if they work with clients who are dishonest or involved in illicit activities. A due diligence investigation can serve to vet a prospective client and minimize potential liabilities.
A Potential Employee
Due diligence can be an important part of the hiring process, especially when filling key leadership positions within a company. Due diligence takes the extra step to verify that a job candidate will in fact be a good fit for the company’s needs and will not bring any undisclosed past history that could affect the company’s reputation or the candidate’s ability to do the job. In addition, doing due diligence helps to ensure that the job candidate will fit into the company’s culture.
A Real Estate Property
Before purchasing commercial real estate, you need to know exactly what you’re getting and make sure that the property will fulfill your needs. A due diligence investigation of a real estate property will look for potential environmental concerns, such as the presence of hazardous substances or the location of a building on a flood plain. An investigation will also include detailed location research, a thorough building inspection, and verification of code compliance.
Who Performs Due Diligence Investigations?
In theory, anyone can perform a due diligence investigation. However, the process is time consuming and requires access to a wide range of data sources. Most companies hire professional investigators who have the time and the expertise to do in-depth due diligence research properly and legally and to provide an informed analysis of potential risks. If you do choose to hire a private investigator, make sure to choose a firm that specializes in due diligence investigations like John Cutter Investigations.
A company’s reputation is one of its greatest assets and should be protected at all costs. Unfortunately, one dishonest associate or poor choice of investment can do a lot of damage to a company’s image as well as to its bottom line. A proper due diligence investigation can protect you and your business from bad investments, unpleasant surprises, and even legal troubles. Getting a more complete picture of a situation through due diligence can help you make better, more profitable decisions. If you’re ready to perform a due diligence investigation but don’t know where to start, contact John Cutter Investigations today.