Due Diligence

When a patient enters a hospital with stomach problems, usually a nurse gives them a small bag and cup to...

Oh wait. That’s doo-doo diligence. You really don’t want to confuse the two.

All right. Due diligence is the process of inspecting a company or property or asset before investing in it or buying it. The phrase derives from the notion of a bill being owed, i.e. it was…uh…due. So for a buyer being prudent, doing their due diligence is a must. And, as you’d guess, every dalliance of a diligence is different. But let’s walk through an example.

Forest Lawns, finest installers of funeral acreage in the world, wants to buy Gnome Sweet Gnome, finest maker of clay gnomes.The combination, on paper, seems fabulous, and Gnome Sweet Gnomes is phenomenally profitable: on just $10 million of sales, they have $15 million of profits.

How can that happen? Forest Lawns is a billion dollar mega corporation, and begins its due diligence to buy Gnomes for $100 million cash. They inspect the books, and a number of numbers…don’t add up. There appear to be zero selling costs...and lots of revenues seem to appear out of nowhere. Oddly, a ton of revenues come in from PayPal/eBay and, well, something is just…off.

Luckily, one of Forest Lawn’s chief investigators watched this video, and had the wherewithal to post a camera over the Gnome Sweet Gnome factory at night. To everyone’s astonishment, they witness the gnomes coming to life at night, escaping the factory, and then mugging people at knifepoint.

Uh…wow. Close call. That could have been a PR nightmare. Much better to buy Gnome Sweet Gnome’s competitor, When in Gnome, where their product, you know…doesn’t break the law or threaten civilian lives.

If Forest Lawn hadn’t done their due diligence, they wouldn’t have been privy to that vital piece of information they uncovered.

So yeah…that’s why you need to do your due diligence. Because you never know when you’re going to encounter thieving garden decorations.

Or, uh…anything else a company doesn’t want you to know about.