How Do I Conduct a Due Diligence Background Check?

If you have never ordered a background check for a business transaction, keep calm and do not panic. When your organization tells you that they need a due diligence background check, you may feel lost, especially if you have never done one before. Where do you start? We can help you understand that request and point you in the right direction.

‍What is a background check?

‍A background check is a process used to verify the past of a person or company. The results of a check can help organizations decide to form business relationships, employ people, or even license individuals. (There are numerous other reasons not mentioned here.)

‍A due diligence background check is not the same as a pre-employment background check. 

‍The purpose of your background check dictates the type of check you need. It is very important to understand the difference between a pre-employment and a due diligence check, so you do not violate any laws or regulations.

‍Pre-employment background checks are used in the hiring process and are regulated by the Fair Credit Reporting Act, which creates certain limitations and rules around what companies can and cannot do. Due diligence background checks are more intensive and cannot be used for pre-employment screening. They are typically conducted on business entities and their owners, officers, and key personnel as part of significant business transactions. The goal of these due diligence background checks is to prevent fraud and to shield a company or individual from liability exposure. There are many reasons to conduct a due diligence background check, including:

• Mergers and Acquisitions
• Alternative Investments (Hedge Funds, Angel Networks, etc.)
• Partnerships Reviews
• International Business Partner Review
• New Clients “Know Your Customer”
• Vendor or Supplier Screening
• Franchising
• Commercial Lending

What can a due diligence background check uncover? 

‍At Business Screen, we attempt to uncover information (i.e. red flags) on a company, its ownership, or management team that will assist you in making a business decision. Please see below for a list of common questions that our clients want to be answered via a background check:

• Is this a legitimate business with the credentials and experience it claims?
• Is this a shell company organized to obtain fraudulent contracts without any staff or permanent business purpose?
• Has the company or officers been involved in any corruption or fraud?
• Has the company or officers been subject to debarment, suspension, investigation, legal action, financial issues, or negative publicity?
• Does the firm have the capacity (experience, personnel, and resources) to complete the proposed work?
• Does a proposed consultancy have the educational credentials and experience claimed?
• Are the officers or owners involved in litigation that may negatively affect the company?
• Do the owners, officers, and key personnel have the experience and credentials claimed?

This is just a sampling of the questions asked about companies and individuals. For any given due diligence background check, the focus of the inquiry can be tailored to the purpose of the check.

‍Get Support for Your Due Diligence Background Check Needs at CSBusinessScreen.com. We work each day with businesses and individuals who are making important decisions about their companies and resources — decisions that demand a due diligence background check. Get in touch to learn more about how we can help you make business decisions with confidence.