Don’t be intimidated because it’s a legal term, basically due diligence is paying attention to all the details, dotting your i’s and crossing the t’s, doing your work with integrity.
When I was starting my first business, a martial arts school in NYC, my business partner and I found this great deal on a space in Brooklyn. It had previously been used as a gymnastics studio and we were going to inherit a lot of expensive equipment, which in hindsight should have been a red flag, but at the time we saw it as a plus. We presumed (another bad idea) that we would be able to use it as a martial arts studio without any issue. We negotiated our lease and signed.
Then I went to the Department of Buildings even though it was after the fact, and learned that the Certificate of Occupancy was for Medical Offices and the space would not be acceptable for our Physical Use. Advised by my mentor, our Grandmaster, we learned we were in way over our heads. We did not have the time or financial resources to change the C of O, so we put a stop payment on our deposit check. It was certainly not how either of us wanted to do business, but we needed to get out of the deal we had just signed.
The next thing we knew, we were getting sued for breach of contract. It didn’t matter that the agent had presented us this space as an acceptable space for our martial arts school. We had signed a contract and were in default. I was terrified. The lawsuit threatened to crush my dream of opening our my school. I was going to be forced to go back to waiting tables and working side gigs all over again. However, we were able to find a lawyer in our martial arts community to take the case pro bono, and thankfully settled for an amount that would not rob us of our ability to start again.
You can bet that in every venture that I’ve started since then, I research the requirements specifically before I get started. I don’t play around with the timeline, presume or assume anything. If it’s not in writing, it’s not happening; and if it is written down, make sure to double check its accuracy.
Ideally when you’re starting your new business, you should hire a business lawyer and and consult with your accountant, at least to help you determine what sort of business you should open… Sole Proprietorship, LLC, C-Corp, S-Corp etc. But when you’re just starting out the cost of these professional services can seem daunting. It’s worth it, but if you can’t spring for your own traditional lawyer, there are companies with more accessible and affordable options like LegalShield, or LegalZoom.
However you manage it, make sure it gets done because in the end, it’s your end on the line.
Do you have a due diligence story to share? A time where you were able to avert a crisis by doing the work? Do you have a process or did your intuition lead you to the discovery?
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