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What is Due Diligence in Business?

What is Due Diligence in Business?

POSTED November 8, 2026
BY Matt Aubin

Matt is both the company founder and a nationally renowned private investigator. Matt is an intelligence specialist who excels in detecting and preventing the illegal interception of communications and in providing high-tech covert surveillance. Matt has years of hands on experience in the investigation industry and has developed a reputation for incorporating state of the art technology and innovative ideas to provide effective solutions for his clients. Matt also serves as Treasurer for the Executive Board of Directors of FALI, The Florida Association of Licensed Investigators.

Due diligence in business is the investigation a buyer, investor, or partner runs to verify a company’s finances, legal standing, ownership, and people. The work happens ahead of signing, while walking away still costs little. In the cases my team handles in Orlando, the hardest questions are about the people and ownership behind the numbers.

Key takeaways

  • Due diligence verifies a company’s finances, legal standing, ownership, and people ahead of a deal.
  • A franchisor must hand over its disclosure document at least 14 days ahead of any signature or payment.
  • The Franchise Disclosure Document has 23 numbered items, including litigation and bankruptcy history.
  • U.S. banks must identify anyone who owns 25 percent or more of a company opening an account.
  • A background check reports records on file, while due diligence tests the claims a deal depends on.

What is due diligence in business?

Due diligence in business is a structured check of the facts behind a deal, done by the side that stands to lose money if those facts are wrong. Buyers run it on sellers, investors run it on founders, and lenders run it on borrowers.

A pre-purchase home inspection is the closest everyday comparison. The listing photos show fresh paint, and the inspector crawls under the house to look at the foundation. Due diligence does the same job for a business deal, with tax returns, court files, and ownership records standing in for the crawl space.

Scope changes with the stakes. A small loan to a longtime supplier may need a few record checks, while the purchase of a whole company calls for an accountant, an attorney, and often a licensed investigator.

Where does the term due diligence come from?

The phrase is closely tied to U.S. securities law. The Securities Act of 1933 gives directors, underwriters, and experts behind a stock offering a defense if they believed its statements were true after reasonable investigation. The statute’s yardstick is the care a prudent person uses in managing their own property.

What are the types of due diligence?

The common types of due diligence are financial, legal, operational, commercial, and investigative, and a large deal uses all five. Each type answers a different question about the same target.

TypeWhat it checksWho usually does it
FinancialStatements, tax returns, debt, and cash flowAccountants
LegalContracts, leases, licenses, and lawsuitsAttorneys
OperationalStaff, systems, suppliers, and equipmentThe buyer's managers or consultants
CommercialMarket, customers, and competitorsThe buyer's team or industry advisers
InvestigativeThe people, their history, and who controls the companyLicensed investigators

Investigative due diligence rarely appears on standard checklists, and our corporate investigation team is hired for exactly that part. We confirm that the owner, the track record, and the company structure match what the other side described.

Is due diligence the same as a background check?

Due diligence and a background check are different jobs, and a background check is one small input into due diligence. A background check pulls the records filed under a person’s name. Due diligence starts with the claims a deal rests on and tests each one against records, documents, and people who know the subject.

What people assumeWhat is true
A clean background check means the deal is safeA background check shows records filed under one name. Prior company names, silent partners, and private debts can sit outside that search.
Due diligence is only for mergers and acquisitionsFranchise purchases, partnerships, private loans, and senior hires all call for it.
The seller's documents are enoughSeller documents are the claims being tested. Due diligence compares them with tax filings, court records, and third-party sources.
Due diligence ends at signingBanks must keep customer information current after an account opens, and a long partnership deserves the same habit.

When do you need due diligence?

You need due diligence any time you are about to commit money, your name, or your company to someone whose claims you have not verified. Four situations come up again and again.

Buying an existing business. The Small Business Administration advises buyers to bring in an attorney and an accountant and to review the letter of intent, contracts and leases, financial statements, and tax returns. Licenses, permits, and zoning belong on the same list.

Buying a franchise. Under the FTC’s Franchise Rule, a franchisor must give you its Franchise Disclosure Document at least 14 days ahead of any contract or payment. The document has 23 numbered items. Item 3 covers litigation history, Item 4 covers bankruptcy, and Item 20 lists current and former franchisees you can call.

Taking on a partner or investor. A partner’s resume and an investor’s stated funding are claims until someone checks them. For executive roles, background screening covers the hiring side, and a partner who will hold equity deserves a deeper look at past companies and lawsuits.

Lending money. A private loan to a business, or to a friend with a business idea, carries the same risk as an investment with less paperwork behind it.

What is an example of due diligence?

Example (illustrative only): A dentist in Orlando plans to buy into a second practice with a partner she met at a conference. Her accountant reviews three years of tax returns, and her attorney reads the lease. An investigator then finds two dissolved companies under the partner’s former business name, one with an unpaid judgment. She renegotiates the deal.

What does the due diligence process involve?

The due diligence process involves five steps: setting the scope, collecting documents, verifying them against independent records, tracing ownership, and reporting the findings.

  1. Set the scope by listing the people, companies, and states involved, along with the decision the findings need to support.
  2. Collect documents from the other side, including financial statements, tax returns, contracts, leases, and licenses.
  3. Verify each document against court files, state corporate filings, and regulatory records.
  4. Trace ownership and control back to real people. Federal banking rules set a useful benchmark. Banks must identify any individual who owns 25 percent or more of a company opening an account, plus one person who controls it.
  5. Report the results, separating what was confirmed from what could not be verified. An unverifiable claim is a finding too.

How long does due diligence take?

Due diligence takes as long as the scope demands, and the number of people, companies, and states involved sets the timeline. Our corporate investigations range from days to weeks or longer. Franchise deals have one fixed floor, the 14-day disclosure period under the FTC’s Franchise Rule.

Who performs due diligence?

Accountants handle the financial review, attorneys handle contracts and legal exposure, and licensed investigators handle the questions about people and ownership. Our investigation services for attorneys support law firms with asset verification, background research, and witness interviews. Southern Recon Agency holds Florida private investigation agency license A1400197.

A deal is only as sound as the people behind it.

We verify the people, the ownership, and the track record behind a deal, and we report what holds up and what does not.

See what a due diligence investigation covers

Confidential, and handled by a licensed Florida investigator.

What red flags does due diligence look for?

Due diligence looks for gaps between what a person or company claims and what the records show. The patterns below are reasons to slow down.

Red flags:

  • Work history or credentials that cannot be confirmed with the employer or licensing body
  • Lawsuits, judgments, liens, or bankruptcies the other side never mentioned
  • Ownership held through layers of companies with no named individuals
  • A string of dissolved or renamed businesses
  • Regulatory actions or lapsed professional licenses
  • Pressure to sign or wire money on a short deadline

Some counterparties do not exist at all, and synthetic identity fraud is how invented people and shell businesses pass a first glance.

A single red flag is a reason to ask questions, and the answers decide what happens next.

What can you check yourself, and when should you hire an investigator?

You can check public registrations and licenses yourself, and an investigator becomes useful when the answers lead to more questions or the money at stake is large.

Recommended: Start with the free checks.

  • Look up any investment professional through the SEC’s Investment Adviser Public Disclosure site, which shows licensing and disciplinary history and connects to FINRA BrokerCheck for brokers.
  • Search the company in the state where it was formed. In Florida, the Division of Corporations lets you search business records by company name or officer.
  • Ask for the Franchise Disclosure Document if the deal is a franchise, and call the former franchisees listed in Item 20.
  • Compare the tax returns with the financial statements you were given, with an accountant’s help.

Hiring an investigator makes sense when names have changed, companies have been dissolved, records sit in several states, or the other side resists basic questions. Public searches return what was filed under the name you typed. An investigator follows the trail to former names, related companies, and the people who dealt with the subject in the past.

The clients who call me after a deal has gone wrong tend to say they knew the person well.

TL;DR

Due diligence in business is the investigation a buyer, investor, or partner runs to verify a company’s finances, legal standing, ownership, and people ahead of a commitment. Accountants cover the numbers, attorneys cover the contracts, and licensed investigators cover the people. A background check is one input among many. Franchise buyers get a 23-item disclosure document at least 14 days in advance, and every other buyer has to ask for the equivalent. Start with free public checks, and bring in help when the trail runs past them.

Tell us about the deal and who is on the other side.

We will tell you plainly what can be verified and what the work involves. Fees are quoted after an assessment of your matter.

Request a confidential case review

Florida licensed agency A1400197. Call (844) 307-7771.

Frequently asked questions

What is the difference between due diligence and an audit?

An audit tests whether a company’s financial statements fairly present its results for a set period, usually for lenders, regulators, or shareholders. Due diligence is run by an outside party weighing a specific deal, and it reaches past the financials into contracts, operations, ownership, and the backgrounds of the people involved.

Is due diligence legally required?

Only in certain settings. Banks must identify the owners of companies that open accounts, and franchisors must hand buyers a disclosure document under the FTC’s Franchise Rule. For a private purchase, partnership, or loan, due diligence is a choice the buyer or lender makes. The answer here is general information for U.S. readers.

How much does due diligence cost?

Cost depends on the number of people, companies, and states involved and on how deep the review needs to go. Accountants, attorneys, and investigators each bill for their part. Southern Recon Agency quotes due diligence investigations after an assessment of the matter, so the scope is agreed first.

What happens if due diligence finds a problem?

A finding gives the buyer options. Common responses are asking the other side to explain, renegotiating the price or terms, adding protections to the contract with an attorney’s help, or walking away. The right response depends on how serious the finding is and on how the other side handles the question.

Can you do due diligence after a deal closes?

Yes, although the options narrow. Checks run after closing can support a dispute, an insurance claim, or a decision to end a partnership. Reviewing a long-term partner or major vendor on a regular schedule catches changes early, while there is still room to act on them.

Everything in this article is general information and is not legal or financial advice. For guidance on a specific situation, consult a licensed attorney or financial professional in your state.

About the author

Matt Aubin is the founder and managing partner of Southern Recon Agency, a Florida-licensed private investigation agency (License A1400197) based in Orlando, which he started in 2010. He is a Certified Digital Forensics Examiner, a Certified TSCM Technician, and a Florida Board Certified Investigator, and a court-qualified expert witness in cyber intelligence and cyber forensics. Southern Recon Agency serves clients in Orlando, Tampa, Sarasota, and Osceola County.

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