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Management Due Diligence 5 Top Secrets For A Due Diligence Checklist

By Dr Mark Yates

Republish: EasyPublish™ Published: 15Oct2009 Word count: 1187 Viewed: 901 time(s) Get Free Content For Your Site

It doesn't matter how large or how small your business is, if you are seeking any kind of external investment from banks, business angels or venture capitalists, then you need to understand business due diligence or DD as it's known in the business.

The concept of borrowing finance or seeking external investment to grow your business has changed. Many DD companies blame the current economic downturn for this change. Irrespective of the reasons for change, it's a fact that things are now very, very different.

If you don't wise up to these DD services and implement management best practices, you may find yourself and your business, persona non grata in the upper echelons of business finance institutions.

I visit many businesses seeking exponential and long term sustainable growth, and I can tell you, in relation to pre-investment business due diligence,you might be forgiven for thinking business DD agency staff have retained the services of the famous singer Billy Ocean. Because across the UK DD companies are shouting, when the going gets tough, the tough get going.

As the current credit crunch shows no immediate signs of disappearing, savvy investors are turning to a new breed of business DD specialists. Whereas in the past the primary focus of most DD companies has been on financial DD, management best practices and security DD, the pendulum has turned towards a new area of management DD.

One problem is the lack of business heavyweight consultants skilled enough to conduct management DD.

Given the failure of many of the British and overseas banks and financial institutions, senior management and company directors came under careful scrutiny. In an almost unprecedented show, the world's media actively targeted some of the most senior directors blamed for the financial meltdown and the global ripple effect their actions created.

Almost every kind of financial institution across the globe has had to re-evaluate their pre-investment business DD systems. More emphasis is being placed on ensuring the right kind of managers and directors are kept, or recruited into a business that is about to receive their financial investment.

Tough times require tough measures and savvy investors are keen to ensure the right managers and directors are retained in any new business they invest in.

Although once the domain of outsourced specialist recruitment executives, management DD has entered a new era. DD companies are increasingly operating under a microscope wielded by any number of government and media watch dogs.

A simple mistake can lead to devastating consequences, especially if the bank lending the investment finance has been previously bailed out by a government.

Given the shortage of proven management DD, many due diligence companies are paying substantial business DD fees to ensure the best candidates are retained.

Management DD 5 top secrets for a DD checklist adopts the old saying of, when the going gets tough, the tough get going. It's never been more relevant than when investors pay for DD services to establish management best practices, financial DD & security DD as part of a pre-investment project audit. DD companies are hiring heavyweight consultants for their business DD.

Many business owners complain that the provision of DD has always been a closely guarded secret of larger accountancy and financial institutions. Many conventional business directors regularly voice concerns at the lack of available knowledge and training and the lack of business DD awareness.

Understanding the following management DD 5 top secrets will offer most business owners an edge when seeking any financial investment and business support required to turbo charge their business growth.

Management Due Diligence 5 Top Secrets For A Due Diligence Checklist #1 Due Diligence Companies

It is worthwhile mentioning that the changes in the provision of financial investment for business now dictates many new DD companies are being approached to provide individual aspects of the DD services. Accountancy and financial firms may still be retained to conduct the financial DD, but management DD services are being offered to the new breed of specialist DD companies.

Classed under the banner of business DD, it is not unusual to see these specialists also providing the overall project audit which contains a pre agreed DD checklist. This checklist includes, but is not limited to identifying management best practices and security DD.

Management Due Diligence 5 Top Secrets For A Due Diligence Checklist #2 Project Audit

Many of the new DD companies providing management DD for investors prefer to commence their due diligence services by initiating a full business due diligence project audit. Just like when conducting a financial due diligence, or a security DD operation, a pre-formatted due diligence checklist is utilised to identify positive aspects of management best practices as well as negative aspects of financial DD.

A full in-depth project audit may be conducted overtly, however in some cases these must be conducted covertly, which is why it is one of the 5 top secrets.

Management Due Diligence 5 Top Secrets For A Due Diligence Checklist #3 Financial Due Diligence

Unlike conducting management DD which is considered by many DD companies as having current and futuristic value, financial due diligence is often assigned to the historic DD services category.

Historically with most prior business due diligence operations, heavy emphasis was placed on the financial due diligence information compiled in the security DD project audit.

Although when considering management best practices and other areas of management DD,financial due diligence rarely finds its way onto the due diligence checklist.

Management Due Diligence 5 Top Secrets For A Due Diligence Checklist #4 Due Diligence Services

The precise DD services required for a business seeking investment for growth, will vary from business to business and from investor to investor.

When the primary focus is on management DD then the due diligence services will commence with the project audit & due diligence checklist. And thereafter then revolve around management best practices, security DD and inner aspects of business DD.

As mentioned above, it is rare for management DD services to include financial due diligence. Although it is not uncommon to see DD companies still offering a diverse portfolio of DD services.

Management Due Diligence 5 Top Secrets For A Due Diligence Checklist #5 Management

If you think that Management can hardly qualify as one of the 5 top secrets because it's obvious that management is a pre-requisite of management DD, then think again; because very few business owners and directors took obvious 1, or obvious 2 at school or college.

The aim of the due diligence companies is to identify the precise calibre of the current management. Investors are keen to retain heavyweight proven performance managers. The security due diligence phase will also seek to identify if the current management plan on really staying in the business, or whether they will jump ship at the first outside opportunity presented to them.

Business due diligence places great emphasis on identifying management best practices, and the initial project audit typically contains a rigorous DD checklist specifically designed to cover all aspects of management due diligence and other related due diligence services. Historically any financial due diligence relating to an individual manager or a group of managers considering a management buy out will fall under the scope of the security due diligence.

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