Funding a New Business For Dummies

Chapter 14

Preparing for Due Diligence

IN THIS CHAPTER

Understanding what due diligence means

Organizing and presenting essential documents

Addressing potential red flags

As an adult, it’s very likely that you’ve encountered the term due diligence. In terms of the law, Merriam-Webster defines due diligence as the care that a reasonable person exercises to avoid harm to other persons or their property. (We hope you haven’t had to learn this term the hard way.)

The other use of due diligence is in the world of business. Specifically, it’s a process that investors use to find good investment opportunities, reduce risks, and safeguard their money. It’s a painstaking process that closely examines your business to see if it’s feasible as a going concern, any possible hazards that could threaten your business, and a worthy investment overall.

We’re going to get you ready for the bright lights of due diligence in this chapter by talking about what’s involved with the process. Then we talk about the documents you need to prepare and present to your investors. Finally, we talk about the dreaded red flags and show that as in the Stoic form of philosophy, the obstacle is the way.

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