We often hear about due diligence in business, but do we really understand what it is or why we need it in our business? Today I would like to try and explain the importance of proper due diligence and why we need this, whether your business is large or small.
Due diligence can be used or needed for various reasons, whether you are planning to buy a company, start a company or selling your company. Let’s first look at what due diligence mean.
Reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.
- a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.”
Doing Your Due Diligence
Due diligence has been used since at least the mid-fifteenth century in the literal sense “requisite effort.” Centuries later, the phrase developed a legal meaning, namely, “the care that a reasonable person takes to avoid harm to other persons or their property”; in this sense, it is synonymous with another legal term, ordinary care. More recently, due diligence has extended its reach into business contexts, signifying the research a company performs before engaging in a financial transaction. This meaning may also apply to individuals: people are often advised to perform their due diligence before buying a house, signing a loan, or making any important purchase.
From this we can understand that due diligence focusses on looking at a business as a whole and leaving no stone unturned. In most cases due diligence is used in businesses as a means to see what the business is worth or how profitable and viable a business is to sell or buy. It’s a means to obtain the necessary information in order to make an informed decision before purchasing a business, going into partnership with another business or showing the value to a prospective buyer when you sell your business. We can however use our due diligence to help establish where we are in our business.
Miskyah Toth, founder of Let’s Talk Business always says: “If you don’t know where you are, you cannot know where to go”, by that definition you are able to see why it is so crucial to do a due diligence in your company or business on a regular basis. Only when you know where exactly you are, are you able to see what the next step is in your business and where you can improve.
Due diligence can be seen as a way to see if your “ducks are all in a row”. Business is not easy and there are so many legalities that govern a business, the last thing you want to happen is running into trouble over missing policies or more.
We urge you today to take a due diligence in your business and see where you are. Don’t wait until next week, start today and govern your company the correct way. You can only better your success by taking this step.
– Yolandi Greyling