Due diligence is essential given it allows one to create a subjective opinion and to review the facts. This is sometimes a lot easier said than done, and the standard of work used in due diligence needs to refer straight into the reasons you are buying a business and what you may reckon as the key pitfalls.
The role of the life sciences due diligence is to ensure that the investor has the information they need to enter into a deal with their eyes fully opened about the business, enabling the investor to make an educated decision about the investment. The due diligence team’s job is to assess the business to discover the true facts about its past, present and future operations. Determining whether these facts are good, bad or ugly or whether the business will be a good investment are decisions only the investor should make.
The goal of the assessment is to gather the information that will support the investor’s eventual decision. The investor must determine how to weigh the information based solely on his or her plans and strategy. The due diligence team will be more effective if they are aware of the investors goals but this is not always the case, nor does it need to be for them to complete their job. Knowing the investors goals helps the team prioritize their time.
Being a purchaser or entrepreneur looking to buy a small business, you are entitled to see all financial records and research that is strongly related to the transaction of the company. There are some steps one can pursue to make sure the right information are compiled and that it can conform to a minimum average so that you can make the final decision. By the end of the due diligence process, you need to understand the overall economical health of the entity you plan to purchase, its leads, levels of competition and the current market.
Investors who ask the due diligence team “well do you think this deal is worth doing?” aren’t being realistic either. It’s like going to the track and asking the guy in the betting line next to you “do you think this horse will win?” Maybe the guy next to you knows something about the horse and maybe he doesn’t. Maybe the due diligence team understands your long term plans and investment strategy and maybe they don’t. It’s not their job to make this recommendation (and it’s not their money). Your better question is “What can you tell me about this business?”