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Due Diligence: Do Your Homework

By Marc Hurwitz, President of Crossroads Investigations

Driving out of a dealership with a brand new car can be pretty exciting. That new car smell and feel is memorable. But before even signing any paperwork or putting money down, most of us research, comparison shop and go for a test drive. Then why is it that when it comes to business, we sometimes fail to test drive or conduct due diligence on a potential acquisition, a new business partner or a new product?

Due Diligence is a detailed investigation or audit of a person or business. During my years at the CIA, it was standard procedure to look into a person’s past, which included not only an extensive background check, but also a very detailed analysis of the company they kept. Entrusting your finds with a business or partner should be no different.

Whether you’re looking to buy a business, go into business with a new partner, or are an attorney building a case against a fraudulent company, Due Diligence is a must. It gives you the intelligence and background to mitigate any potential risks or problems before a transaction is completed.

Some other reasons to perform Due Diligence include:

  • Avoiding a bad business transaction by identifying potential defects
  • Making sure a business is what it appears to be
  • Gaining information to be used in price negotiations and assets valuation
  • Avoiding potential legal proceedings from a bad investment
  • Avoiding taking on an incompetent business partner

Crossroads Investigations recently saved a client from investing millions of dollars in a bad company overseas. Turns out the company had nearly a million dollars in debt, which the owner failed to disclose. We delved a little deeper into their assets and bank accounts, and found the problem. Not only were they in massive debt, but also were about to be fined for a number of international trade violations. Our client avoided a major headache and potentially losing millions of dollars.

Due Diligence requires some time, but a professional effort can be quick and efficient at creating comprehensive and thorough Due Diligence reports. Here’s how to do it: Start by gathering as much information from the public domain as possible, which includes blogs, local media, websites, corporate and SEC documents, and court records. At Crossroads Investigations, we cross-reference this information with details found in databases restricted to some licensed private investigators.

Here are some of the other things we look for:

  • Compliance with terms of investment/contract
  • Undisclosed litigation or regulatory problems
  • Condition of company through discussions with former and current employees
  • Verifying accounts receivable are legitimate
  • Verifying ownership of property
  • Review of all financial records
  • Seller analysis of buyer
  • Buyer’s ability to purchase

Once we have all of this information gathered, we present all the information in an easily digestible format.

So the next time you’re making a major investment, it’s a good idea to conduct Due Diligence. You might even want to include a requirement in the contract for it. Call us at Crossroads Investigations and we’ll help you research and test drive your future investment before you take it off the lot. It could be the difference between investing your money and time in a high-performing company or individual, and wasting your time on a lemon.

Marc Hurwitz is the President of Crossroads Investigations. He can be reached via Marc@Xinvestigations.com or (305) 929-3513.

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