Have you ever entered a business collaboration or bought a service only to find out it was a mistake? We've been there, and it's likely because of a lack of due diligence. This week, on the I Hate Numbers podcast, we explore why it is crucial, how to conduct it, and its benefits for your finances and well-being.

Importance of Due Diligence

In today's fast-paced world, we often make decisions based on surface-level information. Due diligence requires us to verify and validate details before proceeding. As Samuel Johnson implied, what we hope to do easily, we must first learn to do with due diligence. Therefore, before entering any business collaboration or purchasing services, we must ensure we have all the necessary information.

Key Areas 

Financial due diligence is crucial. We need to assess our partner’s financial health. Are they financially stable? Can they meet their obligations? Legally it is equally important. We need to check for any legal issues, such as lawsuits or regulatory compliance. Additionally, the cultural fit between partners is vital. Do we share similar values and objectives? Moreover, we must document everything in writing, ensuring clarity of responsibilities before parting with cash.

Putting it into practice

We should start by validating financial stability. Check financial statements, cash flow, and debts. Next, conduct legal due diligence. Research for any lawsuits or compliance issues. Also, assess the cultural fit. Understand each other's values and objectives. Finally, document everything in a written agreement to avoid misunderstandings.

Conclusion

Due diligence is about making informed decisions. It protects us from unnecessary risks and ensures successful collaborations. So, before diving into your next business venture, remember to be diligent.

Listen to the I Hate Numbers podcast for more insights and join our Numbers Know How community for resources and support in building a successful, diligent business.

Have you ever gone into a business collaboration board of service only to find out you've made a terrible mistake? I certainly hold my hands up to that. I've done that. My question to you is, did you exercise due diligence or is it just one of those things? In my experience of 30 years, many business owners, when they collaborate, when they form partnerships, when they buy in services, do not do due diligence

in a proper structured way. And on this week's I Hate Numbers podcast, I'm going to be looking at due diligence, why it's necessary, how you go about it and why exercising due diligence can be fantastic, not only for your bank balance, but your state of mind, your wellbeing. And also leads to very productive business collaborations.

Let's crack on with the podcast. Now it's very tempting when we scroll the landscape of social media, when we hear about people, what they offer, we look at things and we think, oh, I'd like to get engaged with that person. And we tend to look at surface level at something and we satisfy ourselves on that basis because we're excited, we're enthused.

We will dive in, we'll get straight on. And we have as human beings a natural Affinity to trust what somebody is telling us. We can't necessarily think that they may not be telling the entire truth. This is where due diligence comes in. Due diligence is about being careful. And in the words of Samuel Johnson what we hope ever to do with ease , we must learn first to do with due diligence.

Now Samuel didn't use the word due, but I've just added that just to complete the sentence. It's really important that when we form collaborations, and even though we have a situation where diligence should be applied in many arenas, I'm going to focusing on potential collaborations, buying services from people where diligence has to be

at the top of your agenda before you invest your own time, energy and part with any cash. A little bit of patience, a little bit of diligence can save a whole host of heartache down the track. Now due diligence is not to take things at face value. It's about actually validating, verifying what's going on as best you can.

It's about having information at your disposal. It's about weighing it up and then making the decision based on what I call evidence and not just instinct. Instinct is a wonderful thing in business certainly. There have been times that I've just demonstrated and made decisions purely based on instinct and judgment.

Sometimes they've worked out very successfully. And other times, my bank balance suffers, my brain suffers for it as well, and I'm left wondering why I made such a catastrophic mistake. It's part of the course, you have to learn from these things, and you move on, and I don't want you to make those same mistakes.

So diligence, as I said, as business owners, and outside of business, we should be diligent about things and we must never accept things just because somebody says so. Checking, validating, verifying is all part for the course. You wouldn't buy a house without actually doing a survey. You shouldn't do. You wouldn't buy a house without doing a survey, checking ownership details. That's why we have solicitors who'll go through that in detail to make sure that what we're buying is what we're buying. The same principle doesn't mean you need a team of lawyers, by the way, applies in your business collaborations as well.

So let's have a look at some of the key areas before we look in terms of how we go about doing this. Well, there's financial due diligence and this is not presented in any particular order of importance, but that's if we're going to do a collaboration with somebody, we need to be comfortable about a, our partner's financial health.

If they're saying that they have got very successful businesses, what proof do we have? What validation do we have? Ideally, collaborations involve getting some idea of what the financial statements look like, cash flow and debts. Your business partner may not be prepared to do that. Your collaboration may be a one off project here.

But you need to have that conversation about money at the start, not when the project has started. You need to make sure, as far as you can, that there's stability there, and they're able to meet their obligations. As a practical step, by the way folks, you may decide to have a joint account for which you've both got signatories there.

You may decide to actually agree who pays what. It may be a partnership that you're doing, which doesn't require a cash investment by yourself or the other party. But whatever it is, make sure you've got some understanding that if there is a financial commitments there, that the parties are able to honour those obligations.

There's legal due diligence now. We meet somebody either through a referral, through networking, through social media, through connection in the internet. However, there, we don't actually know them. And by the way, this also applies to family and friends. You'll know them in one particular setting, but you won't necessarily know what goes on behind closed doors.

So checking out for any legal issues there might be, lawsuits, compliance and regulations, and the internet can be your good friend here, as well as perhaps taking up recommendations and references. If it's an existing business that you're going into partnership with, again either as a one off venture or a long-term collaboration, understand how they operate.

There's the cultural fit. Now you don't have to agree with your partner. You don't have to have a replica outlook in life. But are there an alignment of values? Are your objectives the same? Do you talk about what you want to achieve at the end of that collaboration? Or do you just trust it on instinct hoping that you're going to get to where you want to more by luck than judgment?

A cultural fit is important. Now in my business career, I would probably say I've had one truly successful partnership and that's with my good friend Joe North. All others have been catastrophes, but we didn't rush straight into things here. We did that dance. We checked each other out. We understood each other - what was going on and we progressed in small micro steps. Now when you enter in a collaboration or you take on a new supplier, make sure you've got an understanding at the beginning before you have that conversation. What do you want to get out of this?

What's your scope? What's the end goal? What's the end objectives and understand the responsibilities of each party. And folks if you're thinking there's a lot of information that's quite sensitive to share. What do we do? I would always recommend that if you start talking to a potential partner, if you're looking at taking on a key supplier here, and you're sharing information, get a non-disclosure agreement, as you might abbreviate here, get that signed up first.

If the person you're collaborating with, the supplier, is not really willing to sign an NDA, then that might be a warning signal to yourself, a red flag if you wish. At the end of the process, by the way, folks, I believe you should always document something in an outline agreement, in writing. It doesn't have to be War and Peace, but you need to clarify at the end point what the responsibilities of both parties are.

And do that before you part with cash. Having an agreement where there's no idea of what each party has to contribute, what expected of each party, is a very dangerous thing to do. If it goes wrong, and I've seen it happen with friends, with family and all the rest of it, then you need to, and you are going to seek legal recourse.

The courts will expect you to have something outlined. Again, written agreements are ideal, and that gives clarity to all the parties involved. Now in the business world, knowledge is power, and due diligence provides you with that power, ensuring that you enter collaborations with a clear understanding, a confidence, a degree of firmness.

So when you consider your next business partnership, remember to do your due diligence. And it matters not by the way whether that person is a friend. Sometimes that can be an extra challenge in its own right, an extra risk, whether it's family, do your diligence before you dive in slowly. And let me end with a final phrase

I love: Fools rush in where angels fear to tread. Until next week, folks, be diligent. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.