Due diligence: The difference between a leap of faith and a smart move.
In boardrooms, cafes, bars for happy hours, and WhatsApp conversations, deals are agreed every day with more optimism and spontaneity than accurate, full, and frank disclosure of information.
Words are taken at face value, track records are assumed, and numbers are accepted the way we accept “Terms & Conditions”, by simply scrolling or glancing through, until something goes wrong.
You will hear the phrase “due diligence” repeated in almost every major transaction, property sales, mergers & acquisitions, IPOs, and fundraising. So why does due diligence matter?
Business is filled with two kinds of information:
- First, the very convincing ones are what people tell you;
- The other is what the documents say, which is always the truth.
When money moves, risk moves with it.
Here’s something to ponder – Do deals collapse because someone neglected to check what really lies beyond the dotted line?
Case in Point
A client once almost invested in a “promising” business. Revenue looked strong, clients looked stable, retail shops were everywhere, and the business owners spoke confidently about expansion.
To her disbelief, it was only after she signed the share purchase agreement and due diligence was conducted that she discovered the absence of required business licenses, unpaid taxes, expired contracts, noncompliance with safety standards, and a legal dispute quietly sitting in the background. Lucky for her, she could rescind her actions after she found out about the discrepancies.
Today, that client calls herself “more experienced,” but privately she admits she was simply too trusting and never knew there was so much to learn in a purchase transaction.
How do I really know what I am buying?
People think due diligence is a process involving lawyers, accountants, spreadsheets, and data rooms. Actually, due diligence starts with a question: “Do I really know what I am buying?”
Interestingly, the parties most likely to skip due diligence are the ones who trust each other, best friends, relatives, former colleagues, the people who assume “nothing can go wrong” and believe that the cost of doing the due diligence is better of saved for other use.
But business has a way of testing relationships, and nothing strains trust like discovering liabilities after you have already paid for them. A leap of faith is romantic. But expensive.
So here’s a tip:
In a business transaction, treat due diligence as curiosity not suspicion.
It is simply saying: “I want to know the truth so I can decide responsibly.” That is the voice that separates confidence from wishful thinking.
At the end of every deal, there are only two outcomes. Either you confirm what you already know and believe, or you discover something you wish you had known earlier. One protects your investment; the other becomes an expensive lesson, paid with real money and time.
——————————-
Ellie Law of Daphne Leong and Ellie Law Chambers is building a new kind of law firm—one grounded in empathy, education, and everyday people.
The views expressed in this article are those of the author. The content is provided for informational purposes only and should not be taken as professional advice. Readers are encouraged to consult a qualified professional before making any decisions.
