If you are buying an existing business as a way to avoid the uncertainties of the startup phase, you’ll need to do “due diligence” on it before committing yourself and your investors to the deal. So, what is due diligence?

Essentially it’s the process of going through the books, examining current trading information, details of investment plans, commitments and liabilities. It should give an indication of any flaws in the setup, any skeletons in the cupboard.

For a listed company, it can ensure that shareholders receive the highest price and set off an auction process. It is disruptive to the target company which has no certainty that anything at all will come of the process.

Most companies like to keep closed books so that sensitive information doesn’t fall into the hands of rival firms who may just be fishing for confidential data.

The system isn’t foolproof either, in that investigating lawyers and accountants can run up huge bills without guarantee of accuracy.

Additionally, in the new world order, after Enron, we know that some companies have kept a second, secret set of accounts.

But for buying small-to-medium businesses, it would be unthinkable to go ahead without some form of due diligence, if only by the prospective buyers themselves.