The Importance of Pre-Investment Due Diligence

Any company making a significant investment is going to spend time on the due diligence phase. It’s important to look into the background of both companies and their officers before closing on a deal. In most cases, due diligence is seen as a final check mark, an opportunity to look for red flags before finalizing a transaction.

However, it’s essential that the due diligence phase starts early in the process rather than later. If you wait until a closing date draws closer to conduct due diligence, you put at risk months of hard work.

Here’s a look at the importance of due diligence during the earliest pre-investment stages, as well as the investment situations that demand due diligence.

Start Due Diligence Earlier Than You Think

What’s the benefit of early-phase due diligence? Most firms spend an enormous amount of time, energy and resources on a potential investment. Not only do firms put countless hours of their associates’ time into an investment, they also pay large fees to law firms and accountants providing support.

If the deal falls apart — and many do — time, energy and resources go to waste.

At CS Business Screen, we can provide fast and affordable pre-investment due diligence services early on — well before money has been spent and time has been wasted on a deal with red flags. Our team and tools are adept at locating potential problems like bankruptcies, liens, judgments and pending litigation prior to bringing in more associates and outside firms to work on the transaction.

Our approach brings efficiency to the process. Once we’ve completed the background check of a company, we can also assist with background checks on corporate officers before the investment moves forward.

Half of Deals Fall Apart During Due Diligence

When your company encounters an opportunity, it’s only natural to want to move forward as quickly as possible to seize that opportunity. But it’s important to remember that half of all business sales fall apart during the due diligence phase. Sales most often fall apart because the seller failed to disclose something significant.

CS Business Screen moves quickly to conduct due diligence background checks. Our efficiency helps buyers and investors seize opportunities while also providing them the transparency needed to raise red flags and uncover significant issues that have gone undisclosed.

When to Choose Pre-Investment Due Diligence

What situations require due diligence background checks? Pre-investment due diligence is most important in two specific scenarios:

  • When a company wants to buy or invest in another company:
    • In this situation, we can perform a due diligence background check to ensure the company is legitimate.
    • Our background checks will uncover any relevant financial issues the company is experiencing or has experienced.
    • These due diligence checks can also find pending lawsuits.
  • When a company wants to facilitate the selling of another company:
    • A due diligence background check in this type of situation can locate potential risk and prevent the company from making an embarrassing mistake.
    • This type of due diligence check can also locate easy fixes that can increase the value of the company to be sold — like paying off liens, for example.

Of course, there are other scenarios in which a pre-investment background check is advisable. The two scenarios described above are just the two most common that we encounter. If you’re wondering whether or not to move forward with a pre-investment background check, we can provide guidance on how best to conduct due diligence.

CS Business Screen’s Pre-Investment Due Diligence Services

Investments of significant scale require due diligence. Just make sure that your due diligence efforts are efficient and that they save you money in the long run.

At CS Business Screen, we have the tools, team and resources needed to quickly execute on pre-investment due diligence for your firm. You can avoid wasting time and money on an investment that is only going to fall apart at a later stage.

Contact us to learn more about our pre-investment due diligence services.