By Rashid AW Galadari
Diligence begins in your own office, by simply looking into a company before signing on the dotted line.
So, that all-important deal is on the table. The investor is a sure-thing, the product a guaranteed winner at a cut-price rate. The business owner is all smiles, content that his product is getting the recognition it deserves. The buyers are happy, safe in the knowledge that they have the networks and latent demand to make money on the deal. The lawyers are busily concluding the paperwork, while mentally calculating their fees, and the sales guys are doing the same for their commission payable. In short, everyone seems to be happy.
So, what is wrong with this scene? Well, the deal may be done, but behind the signature is the promise of payment, and that payment is not guaranteed. Many excellent businesses across the world struggle due to a few critical issues: Cash flow; company and market knowledge; and control of your operations.
In an ideal world, there would either be no credit terms, or infinite credit, thereby eliminating the need to balance incomes and expenditures between credits and debits. However, in the real world this is not the case and so getting paid on time is often as crucial as the payment itself. One of the keys to success in business is not just doing the deal; it is making sure that it stays done, and is honoured, i.e. paid in full. The only way to ensure you get paid is to be one hundred per cent sure that the client/buyer has the money to fulfil his obligations. Due diligence is the key to this surety.
Threats to your business can come from any area, but knowledge of the market itself, of your competitors, and the next phases in the market can only serve to help your business planning. Michael Porter's five forces all relate to market knowledge. Monitoring these five forces can create invaluable opportunities for acquisitions, mergers, product development and pro-active decision making. The best deals are done using the best of all the information available.
But how do you determine who to deal with, and how to deal? There are companies like Kroll whose sole job is to seek out and determine this type of data, but not everyone reading this will be the CIO of a large multinational with a budget to match. Diligence begins in your own office, by simply looking into a company, a situation, or a market. Even something as simple as getting cement to a construction site is potentially an issue, and critical to the program of works. Staying ahead of the game in every area is a full time job, so exercising control of your operations is actually the first basic step of an exercise in due diligence.
Increasing control in your operations is guaranteed to increase confidence, and increased confidence comes through an increase in knowledge. Even if the "visible" output of your company is small and over a long period of time - for example in R&D - your "invisible" work in due diligence can still yield great benefits. The only risk In this case is that the company may be perceived as lethargic or inactive; however this can easily be countered with good PR and marketing strategies.
In the GCC, there is a long established system of trust based on the name of the people being dealt with. In the wider world, the same applies, so companies with a strong history of delivery can demand higher percentages in transactions. Whatever your business is, the partnerships you form are at the core of the model, so confidence in - or the riddance of - your partners equals an increase in the value of your stock. Just look at Daimler Chrysler...
In sport, the best form of defence is attack. In business, vigilance is the best form of defence.
Rashid AW Galadari is chairmain of the GIO.