DUE DILIGENCE: CHOICE OR NECESSITY?

Due diligence is no more an alien term in the business arena today. With more and more businesses flexing muscles for new clients, fundraising, M&A, and virtual modes of recruitment, due diligence can no more remain a “convenient ignore” for decision-makers. 

Mobius Research and Knowledge Services India or MRKS India has been in the business of due diligence for the last 2 years and remains a promising emerging player in this vertical. The company conducted a PAN-India survey among top business decision-makers (age group of 25-65 years) of India Inc on the need for due diligence for Indian business houses. While all the respondents remained excited about the survey, all of them unanimously agreed that due diligence is now an inevitable and indispensable factor for decision making and profitable business operations.

 

Due diligence: A necessity

The survey found that due diligence is a critical step that enables the interested parties to take a leap of faith. 75% of respondents believe due diligence should be a mandatory step involved in any business transactions. It is through due diligence that they can check for any hidden issues, which should have been brought to their attention earlier and evaluate the growth prospects of the company. These important inputs can help to decide whether the investment or acquisition will be worthwhile or not. 

Mandatory Due Diligence In Making Any Business Decisions

 

Due diligence: Establish and enhance brands’ reputation

Due diligence uncovers potential flaws/risks involved in transactions by providing sufficient and genuine information. Due diligence is an extensive process that covers many aspects of a business – from financial statements and accounting records to key staff members and contracts which helps in establishing brands’ value or reputation in a market. The key factor of due diligence is the integrity that improves customer and public perception which helps brands to maintain their reputation. 78% of respondents believe that due diligence establishes or enhances brands’ reputation. 

Due Diligence Enhances Brands' Reputation

 

In the majority of the cases, the survey suggests that it is important to perform due diligence and there is a major need for it in making different critical business decisions as it reduces the hidden problems involved in it.

Employees’ background verification: Ensure safer workplace

With the Indian employment market compromising formal and informal employment, highly regulated, moderately regulated to the unregulated nature of employment, the situation calls for thorough formal background verification by companies.

75% of respondents are aware and believe that it is important for companies to perform background verification of permanent and contractual employees and 70% of respondents agree that background verification creates a safer workplace and improves morale and trust between company and employees. It helps in lowering the chances of bad hires before making job offers to candidates. 

 

Future of due diligence

The study focuses on the need for due diligence in making major business decisions and also helps to know about how reliable due diligence is for us?  

In the current scenario, most companies are involved in virtual operations which will increase the number of hidden problems and frauds. The shift in work culture towards virtual mediums makes background verification more critical as it needs thorough study and good due diligence in various aspects of companies. The aspects of a company covered by due diligence usually fall within areas like finance, commercial performance, legal compliance, operations, and environmental impact.

In the survey, 72% of respondents agree that professional help saves decision-makers and companies in turn from making wrong investments. Professional help not only improves deal capacity and saves time, and it also reduces costs in many cases.

 

To conclude, due diligence is a necessity in many aspects of companies. MRKS India recommends that companies, no matter if they are an established one or a start-up, must engage in due diligence for every critical business decision. With good due diligence, keep the records clean right from the beginning. This will save any issues at a later stage and also the aftermath of the cleaning up process.

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