Introduction to entrepreneurship/IENT101/Before/Due diligence

Due diligence is a process of researching and analysing a company or organisation in preparation for a business transaction. It means taking reasonable care to verify that the information that is being relied on as the basis for decision-making is true.

When used in the context of a take-over or investment in an existing business, due diligence usually requires careful checking of a large amount of legal and financial information. In the case of a start-up business, however, there is often not very much factual information available yet, so due diligence can refer to the care that the founder takes in preparing the business plan, and the care that a potential investor takes in evaluating that plan.

Read Startup Due Diligence for Investors – Best Practices & Checklists to understand due diligence assessment from the point of view of a potential investor in a start-up business. An entrepreneur with a new business idea would also want to be sure that their business plan stands up to this level of scrutiny - both to reduce their own exposure to risk and to attract investors if required.

References