Verity journal

What?
Due diligence is a term that describes a general duty to exercise care in any transaction, whether it’s an investigation or evaluation of a business opportunity or prior to employment. As such, it involves the systematic research or evaluation into all relevant aspects of the past, present and predictable future of a business or individual.

Why?

Due diligence is conducted for a number of reasons, including the following:

• To provide confirmation that the business is what it appears to be
• Identify potential business ‘defects’ and avoid bad transactions/deals
• Gain useful information for valuing assets, defining representations and warranties, and/or negotiating price concessions
• Verify that a transaction complies with investment or acquisition criteria

When?
Due diligence commences when a business opportunity first arises and continues throughout. Detailed due diligence is usually conducted after the parties involved in a proposed transaction e.g. business and vendor, employer and employee, have agreed in principle that a deal should be pursued and after a preliminary understanding has been reached, but prior to the signing of a binding contract.

How?
The parties conducting due diligence e.g. Verity Intelligence and a client, generally create a checklist of essential information, including financial statements, business plans, education or employment checks and other documents. In addition, interviews and site visits are conducted. Finally, detailed research is conducted with external sources- including customers, suppliers, industry experts, trade organizations, market research firms and others.

Does due diligence ensure business transactions or employee hires are successful?

No due diligence program can guarantee that business transactions/ hires will be successful – it only improves the odds. A business cannot totally eliminate risks via due diligence processes.

What’s the difference between disclosure and verification?

Disclosure is a general obligation to disclose or tell the truth about material issues and all facts related to a business transaction or employment matters. Verification, on the other hand, is the process of research to validate and prove the authenticity of the information provided. Verification is intended to provide additional confidence in full disclosure.

Is merely disclosure sufficient?

Although requesting for full disclosure may seem a sufficient precautionary measure, there’s still the risk of being ‘deceived’ if no verification process is in place to validate the authenticity of the information provided.

It seems like anyone can conduct due diligence. Isn’t it just common sense?

It may seem simple in theory, but in reality, due diligence is and should be a complete process. Due diligence is all about validating facts, eliminating assumptions and digging up more information about investments/hires/customers.