The Art of Business: Due Diligence Pays Off
Due diligence is a term often associated with mergers, acquisitions, and other serious business deals for which it’s imperative to learn as much as possible about potential business partners before jumping into bed with them.
Many graphic designers fail to do any due diligence before entering into a contract. Who can blame them? Just getting a new client is tough enough these days. Who wants to take the time or the risk of potentially insulting clients by kicking the tires and looking under the hood of their business dealings? But if those tires are low and the engine is about to putter out, you may find yourself stuck with thousands of dollars, or (yikes!) tens of thousands of dollars, worth of completed deliverables and no way of collecting the money owed you.
Vic Zauderer is co-owner of Zaudhaus Design, a firm that specializes in traditional graphic design and Web software application interfaces. Last year a little due diligence paid off big for Zauderer when he was approached by a creator of a supply-chain-management software company.
“The firm was well-funded, but they were asking us to do an incredible amount of work in a very short time, and it just didn’t feel right. We wanted to take on the client, but we knew we couldn’t do a great job in the time limits they demanded.”
Zauderer followed through with few of the due diligence steps outlined below and made the painful decision to turn down the client. As it turns out, it was a very smart move because the company flamed out shortly afterward, a development that would have left Zaudhaus holding a fat folder labeled “dead accounts receivable.”
“The fact is we weren’t confident in their idea, and when we asked around the industry, others weren’t either. That settled it for us,” said Zauderer.
The goal of due diligence is simple: Learn as much as possible about your client and the client’s industry. Particularly in a soft economy, a little due diligence is worth the effort, and it usually can be done in a few short hours. Here are a few methods worth exploring:
- Ask around informally. You can gather information informally by speaking to experts and pundits in your client’s industry, your client’s customers, and if you have the true sleuthing gene, your client’s competitors. It’s through these talks that you’ll learn the history of the company, its standing in their respective community, and the prospects for longevity. Ask open-ended questions and above all be courteous. If word gets back to your potential client and they ask you if you’ve be making inquires, admit it freely. Explain that due diligence is part of every business deal you make.
- Learn from the client. You can gather a good deal of information from the company itself, through annual reports, press releases, and collateral material. Try to spend as much time beforehand speaking with the inside team on the project. This will help you understand their goals and demands, and determine if the plans are reasonable and their expectations fair. If the job is big and your commitment is demanding, ask to meet with the highest decision maker for the project, even if it’s the CEO. You don’t want to work for months with an underling only to find your great ideas for a corporate identity or annual report are rejected at the 11th hour by the top dog.
- Investigate on the Web. Needless to say, the Web is chock-full of information, from company directories, to SEC filings, to industry magazines. The problem, of course, is information overload. Here are some great places to start, compiled, in part, by the Law Library Resource. Some sites are free and others charge by subscription or per use.
- Hoovers offers free business news and links to the Dow Jones Publications Library for articles about private and public companies culled from 6,000 journals.
- Company Sleuth compiles information about U.S. public companies. In addition to general company info, the site specializes in rumors, insider trading information, trademarks and patents owned by the company, and SEC filings.
- CorporateInformation provides information or links to over 350,000 private companies. You can search by company name using the entire name or just a partial name. If you limit your search to companies located in a specific state, you will be brought to a page listing state-specific corporate information web sites to choose from.
- Moody’s Investor Services collects credit rating and research and financial information about companies.
- National Association of Secretaries of State provides links to individual state offices where corporate filings are made. Some states provide just name, rank, and serial number, while others provide detailed filing information online.
- NewsLink is a media portal that offers extensive links to newspapers and periodicals.
- CEO Express lists news sources by subject for easy searching.
- Northern Light offers news from 33 newswires.
Like prevention, an ounce of due diligence is worth a pound of cure. Even if you’re confident that your client is legit and capable of payment, a little due diligence will help you understand the company’s unique nature and allow you to better understand and serve their needs.
This article was last modified on January 18, 2023
This article was first published on January 14, 2002
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