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Leading businesses worldwide are encountering an increasing number of frauds!

Businesses thrive on networking, alliances and strategic partnerships. In the dynamic business environment marked by digital, technological and process disruption, collaborating with the right partner is essential to stay ahead of the competition. As Asia’s third-biggest economy, India is an attractive destination for foreign investors who look to form strategic alliances with local partners.

For businesses to interact and ally with other businesses for success, trust and transparency are critical factors. In the recent times, major challenges in terms of collaboration between business partners or joint ventures have been witnessed. The termination of the franchise agreement between Connaught Plaza Restaurants and McDonald’s is a case in point. The conflict was over reported financial irregularities of the franchisee. According to an IndSight analysis, One-third of the joint ventures concluded with a public conflict.

A complete lack of transparency brings in conflicts between promoters and investors where the actual figures and data are withheld or misrepresented. The lack of trust and transparency impacts the relationship between promoters and investors, leading to disputes, business failures and disrepute. Trust is the most critical factor that can break or make a joint venture, alliance, partnership or franchise agreement. Vendor Due diligence, distributor due diligence, due diligence of joint venture companies and other business partners is critical to business success.

Whether as an investor or as a strategic partner, conducting due diligence and looking through the pros and cons of an investment before putting in scarce resources and money is imperative. Trust deficit created by unreliable or fake partners, suppliers or vendors can impact much more than the bottom lines. Damage to reputation and brand image can hurt companies more than the financials.


Business Due diligence is important

Business Due diligence is the critical element that can solve the trust deficit when it comes to alliances, ventures or contracts. Business due diligence helps to:

• Make informed accurate decisions on partnerships or alliances based on data analytics

• Gain an in-depth understanding of the alliance partner or vendor

• Recognize key factors that can lead to success

• Evaluate weaknesses and strong points that can be worked on to mitigate differences

• Partner with the most reliable entities to foster a mutual trust, brand image and business relationships.

Aspects of business due diligence

Business Due diligence is consists of identifying and mitigating the risks associated with organisations before possible business alliances. It should be at the top of the list before evaluating and investing in any business entity. Due diligence can be conducted by accessing multiple records and public databases maintained by government agencies across the country as well as international sites

Some aspects that are checked as part of business due diligence include:

• The reputation of the company, firm or directors

• Financial details of the firm

• Stability of the firm

• Tax payment history, default history of the firm

• The organisational structure, capacity, operating procedures

• Data security systems, cybersecurity protocols

• Credit scores, credit payment default history

• Legal problems, civil or criminal litigations of company, directors, managers and so on.

• Shareholding patterns

• Insurance details

• Physical security

• Trademarks

• Database & media checks

Online databases for business due diligence

Online repositories and public databases in national and international domains are increasingly making business due diligence more accurate, efficient and reliable. One such critical database is the Ministry of Corporate Affairs' database which provides basic details of companies, Limited Liability Partnerships (LLP) amongst other entity types available on its portal, along with financials, shareholdings, index of charges and defaulter status of companies.

Professional due diligence makes all the difference

While information is available on public domains, a professional due diligence and background screening provider such as AuthBridge can go beyond just collecting the data. Intelligent inference of the available data and joining the dots to make actionable inferences is where a professional due diligence provider can add immense value.