Due Diligence Explained

Due Diligence background checks with financial diligence checks

Due Diligence Explained

 

Introduction

Due diligence is a phrase that many people have heard but few really understand what it means. It is a term most commonly used in a professional context in regards to industries such as finances, investments, mergers & acquisitions, real estate, and law, but it is becoming used more often in everyday life.

But what does it actually mean?

This is the definition of due diligence from the Oxford dictionary:

 

Noun LAW

noun: due diligence

  • reasonable steps taken by a person to avoid committing a tort or offence.
  • a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential

 

Essentially, it means checking out a company, an individual, or an organization before you get involved in any sort of transaction to make sure that everything is in order, that they are telling the truth about everything, and that everything is legitimate and above board.

It is a process that can be complicated and time-consuming, and not doing due diligence, or doing it but not doing it properly is one of the biggest causes of a business transaction going wrong. There are many people and businesses who have been stung after not doing it properly and then found out there was false information presented, or that the other party was not set up correctly for it to be viable. This, of course, costs the purchasing business a huge amount of time and money. 

 

 

Deadlines for due diligence

There is always a deadline for due diligence processes to be carried out, which is laid out in the terms of the letter of intent (LOI). This sets out when everything must be completed by. If any pertinent information is discovered after this deadline, the information can not be used by the purchasing company to decide whether they want to complete the deal – the information must be completely disregarded, no matter what it is.

Because of this deadline, it is essential that due diligence activities are carried out as quickly and as effectively as possible. No one wants to spend significant amounts of money in the merging and acquisition of a company to find that a vital piece of information that would have stopped the deal from going ahead was missed.

For this reason, it is advised that anyone undertaking any significant purchase or investment, whether on a personal or a corporate level employ the services of a professional to carry out the due diligence process, such as with Find UK People the specialist due diligence research firm.

We work to find out the corporate financial information that you need to help your transaction, no matter how big or small, is valid & legitimate and based on substantive fact. We can also complete specific financial background checks into the company and the people involved with it, to provide a complete informational picture.

Let’s take a look at some of the different forms of due diligence and how we can help you.

 

 

Administrative due diligence

Administrative due diligence entails checking things such as equipment, occupancy rate, and the number of workstations, among other things. The goal of due diligence is to check the seller’s various facilities and determine whether or not all operational expenses are accounted for in the financials.

It also helps to give an idea of the operational costs that the purchaser may face if they buy and expand the company. 

 

Financial due diligence

This is one of the most important types of due diligence. This will give an in depth s analysis and audit of another individual’s or organisation’s financial records. It allows the potential purchaser to appraise the value and calculate the risk potential. This is almost always done – and definitely should be done before mergers and acquisitions as well as large-scale investments.  The primary goal is to ensure that prospective investors will be able to quantify the assets and values they expect to receive following the acquisition.

Most prospective investors do not want to bear the burden of the targeted companies’ hidden liabilities, which are not revealed in their financial statements; therefore, critical analysis and review of the potential hidden liabilities is an essential task.

Financial due diligence will not only assess and classify the company’s assets and liabilities but will also provide technical cost-cutting recommendations to prospective investors, as well as future cash flow analytics.

Some of the things that a financial due diligence report should investigate includes:

 

  • Debts – both long-term and short-term
  • Revenue and profit
  • Stock history
  • Balance sheets
  • Cash flow statements

 

Find UK People can look into the financial background of individuals in the UK, giving you a picture of their finances from the past. From this, you can then assess their viability based on past financial history, be alerted of any frauds or risk flags and whether there is anything that warrants further investigation. 

 

 

Asset due diligence

This is detailed information about an organisation’s or individuals fixed assets and where they are located. Where possible, a physical visit should be undertaken as part of the due diligence to verify their existence and whereabouts.

Any agreements for leases, schedules for sales, and receipts for capital equipment should be looked at as well as deeds, mortgage, and user permits. 

 

 

Customer due diligence

Companies often want to know whether a potential customer is engaged in illegal activities such as money laundering or financing terrorist organisations when establishing new business relationships. In this case, the customer due diligence process significantly decreases the risk of doing business with a new customer. The amount of customer due diligence required varies according to the company’s size, client type, and business relationship with the customer. 

Find UK People can carry out specific in-depth investigations into individuals that you are considering doing business with. We can check their financial history and background with information about their employment, any suspected aliases that they may use and even deep dive social media accounts backed up by further OSNIT* background checks.

This allows you to build up a clear picture of who you are dealing with and remove the risk factors. 

*Open-source intelligence is a multi-methods methodology for collecting, analysing and making decisions about data accessible in publicly available sources to be used in an intelligence context

 

 

Human resources due diligence

When merging with or acquiring a company, the acquirer also takes on the human capital of the company. Human resources are a valuable asset of a company and should be looked at closely. The acquiring company will want to look at the makeup of the human resources of the company, including:

 

  • How many employees there are
  • The roles and titles of the employees
  • Salary
  • Age
  • Location
  • Tenure 
  • Skills

 

Human resources due diligence also looks into all of the contracts, including those with non-disclosure and non-competitive agreements, any benefits awarded to current employees, and ongoing and past disputes and terminations. 

Find UK People can look into potential new hires in closer detail so that you can be sure that the staff that you will be taking on are validated candidates with a thoroughly researched background and that there are no unknown or undeclared issues or flags that you have not been made aware of during the due diligence checking process or recruitment process through screening / declaration.

 

 

Environmental due diligence

With the environment being such a big focus in this day and age, it is advised that companies look at the environmental impact that their investments have. Not only that but if a company is found to be breaching any environmental acts, they can be in for large fines or even criminal charges, as well as potentially being forced to shut down.

An environmental due diligence investigation will check out to ensure all regulations are being followed and there is nothing that is likely to give you bad press or a bad reputation. 

 

 

Legal due diligence

Examining, understanding, and evaluating the legalities and potential legal risks of a business transaction is what legal due diligence entails. Reviewing legal documents such as contracts, loans, securities, intellectual property, and pending claims is part of legal due diligence.

Integrity due diligence is a subset of legal due diligence that examines and assesses an organisation’s legal, corruption, and regulatory danger.

 

 

Operational & IT due diligence

Operational and IT due diligence examines a company’s activities and evaluates the risks as well as the potential for the company’s value to increase. This type of due diligence aims to determine if the company’s business plan is viable in the light of current operations and planned capital expenditure.

Operational due diligence also considers the possibility of gaining more value from the company by enhancing operations, as well as operational risks. It also seeks to ensure that the current technology being used by the company, is operating efficiently and effectively.  

 

 

Commercial due diligence

A commercial due diligence report examines a company’s performance, the probability that it will meet its objectives, and potential issues that may arise as a result of an acquisition.

This report gives a prospective buyer a thorough understanding of the target business and the market in which it operates. It’s intended to help a potential buyer make an informed decision by highlighting any potential risks associated with the target company.

 

 

The benefits of due diligence

  • Reduce risk and protect your business
  • Protect yourself and your business
  • Improve your power of decision making 
  • Remain compliant
  • Grow your business and business relationships with confidence

 

 

Who needs due diligence

Any company who is considering investing in another company financially or via reputation should carry out full due diligence, whether they are planning on a merger or acquisition, partnership or even taking them on as a customer or a vendor. 

Usually, the purchasing company or acquirer will initiate the due diligence proceedings but is not unheard of for the company being bought out to start the process. This enables them to remain transparent – especially if they know they have nothing to hide or to worry about – and makes them look much more valuable and appealing to potential buyers or investors.

 

 

Why use a specialist to carry out due diligence

Anyone can carry out due diligence, but as we mentioned above, it can be time-consuming, complicated, and must be done properly within a given time frame. It also may involve some deeper investigation, which not everyone is able to undertake due to data access limitations. Find UK People have a range of methods and resources to allow us to get the key information that you need, from our research, to make an informed decision about your investment. 

A third-party specialist also is objective to the situation, so is able to discount any information that is not needed or central to the transaction. We know what to look for and how so that you remain compliant and above board while making sure that you have all the necessary information and documents. 

There is also the need for confidential information to remain confidential, especially in an era where GDPR (General data protection regulations) rules. We know what information can be sourced & passed on and what can’t (NI numbers, bank account details, and so on), so again, you can be sure that everything is processed correctly & compliantly.

Global supply chains, partners, suppliers, and other business relationships all increase your company’s risk exposure in today’s international marketplace. You and your company are vulnerable to reputational, regulatory, financial, and strategic threats if you do not have the right information and insights into who you are dealing with through this complex network of third parties.

Due diligence aims to uncover undisclosed information about a company. It takes time, resources, and money to carry out successful due diligence. It is indisputably true that due diligence is required because some business owners willfully conceal information about a company they are attempting to sell.   In these cases, it is sometimes not what is said but what is not said that makes the biggest difference. The Latin phrase “caveat emptor” fully encompasses what due diligence is all about — let the buyer beware (if they do not thoroughly research their purchase) 

Due diligence is a chance for the purchaser to do their research into determining how well the business fits in with their current operation. It ensures that there is not a clash of culture or ethos, that there is a market for the product or services and ow operations can be improved. It also looks at whether key employees are likely to remain after the transaction.

Find UK People offer a range of Due Diligence services that allow you to gain an in-depth insight into your potential acquisitions and investments and the people that you are getting involved with.

 

 

What is a Due Diligence report by Find UK People

The Find UK People® due diligence report is used by individuals to determine the viability of future relationships.

The due diligence report will provide background investigative work to obtain a snapshot of a individuals financial background for the last 5 years.

The due diligence report will

  • Assess financial viability
  • Highlight financial risks
  • Alert to fraud or fraud risk
  • Inform of financial risks

It will identify key financial information on a subject to allow understanding of previous activity and financial standing based on key intelligence, where available.

 

In-Depth Due Diligence Search will contain

  • FREE address trace*
  • Date of birth confirmation*
  • Confirms current address*
  • Confirms financial status*
  • Current & past directorships*
  • Employment information*
  • Property ownership*
  • Estimated property value*
  • Disqualified directors searches*
  • Insolvency register searches*
  • Suspected alias used*
  • Social media searches
  • Credit background*
  • Mobile or tel numbers*
  • CCJ search*
  • Company financials published for last 5 years*
  • Fee per case
  • Results in 7 days guaranteed

*see terms of supply below

 

The due diligence report offer a three tier service level which is based on research time

  • Basic search – 3 hours of research time
  • Standard search –  6 hours of research time
  • In-depth search – 12 hours of research time

 

Learn more about due diligence reports

 

 

Due diligence checks to obtain financial background information in the UK

 

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Resources

Obtain a due diligence report

Verify any persons current address

Obtain pre-litigation information

Obtain financial background information

 

 

 

Terms of supply for due diligence report

* Where available, Our investigation partners search all the data sources we have available and report on our findings but cannot guarantee provision of all due diligence report features. All prices exclude VAT and are subject to terms of service. Subject to our standard terms of service, all due diligence background reports are fee per case and are charged to investigate each matter. Enquiries are undertaken via telephone, professional & public access databases, Public domain information sources, Credit Reference Agency datasets, discreet investigations and all enquiries comply to the provisions of the Data Protection Act.  

IMPORTANT – for the avoidance of doubt, Find UK People® cannot supply bank account details in any way, including any numbers, sort codes or amounts in a bank account. We also cannot access National Insurance data, DVLA data or HMRC data sources. This is so we comply with data protection legislation in the UK and no trace agency will be able to provide this without breaching these UK data protection regulations unless there is granted access such as for parking enforcement. The subject that you are searching for will never be made aware by us that we are searching on your behalf, complying with the data protection act.

 

 

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