Due Diligence…the other “D’s”

Biztaxlaw.about.com defines Due Diligence as:

The process of evaluating a prospective business decision by getting information about the financial, legal, and other material (important) to the state of the other party.

The term “Due Diligence” is imposing. This definition sounds imposing. Imposing and scientific.

It should not be science.

It should be art.

The final page of our application is a checklist of information we should want to see as part of our due diligence process before approving a factoring deal. It is a pretty standard checklist used for most types of business finance.

I hate the list.

I hate the list so much that I cannot remember a time I have actually asked a prospective client to send me everything on the list. I choose what I want to see based on my initial conversation or meeting with the prospect.

And yet, the list remains The List. ~sigh~

The list is about the science of financial analysis. The list does not allow for things like basic human error, miscalculation or misjudgment. Basically, it does not allow for the humans on the other end of the list to be, you know…human.

How can LDI be the Human Factor if we aren’t focused on the humans?

Our due diligence process focuses on one primary question…Why? Why are you in this business? Why is the business in this place? Why do you think Factoring is the solution? Why LDI?

In order for our model to work, it’s about the why…

Six or seven years ago, we were reviewing two prospects at the same time. Both were commercial plumbing companies with roughly the same sales and the same cash needs. When put side by side, much of the information from the magical list was interchangeable. The principals of each had the same level of experience and expertise. Honestly, I had never experienced anything quite like it…the sameness of it. One of few differences was that one had found us online and the other was a BNI referral.

Then came the why…digging deeper and asking …why? It took only moments for it to become clear. The prospect who found us online had been coached on how to present information to a factoring company in a way that made the deal appealing. Their why and their paper did not tell the same story. Most entrepreneurs cannot wait to share their stories, their passion and their whys. Through the telling of their story, we learn how their story and their paper come together. That is when the package is complete.

We turned the coached prospect down and wished them well. We took on the other company as a client. Both decisions were right.

We recently signed a client. The paper is horrid – scary, really. If we relied on the science of financial analysis to make our decision, we would run. And yet, I am so excited about this deal – about helping them right the ship – about helping them achieve their goals.


Because their why made sense. The horrible, scary paper made sense. It was not all clean lines and formulaic results. It was messy, colorful, abstract art.

In an age when we rely on algorithms, formulas and scientific equations to make decisions for us, it is easy to lose sight of the human component and the why.

Don’t forget to ask “Why”.

Don’t forget to look past the science to find the art.

A well lived life should be messy, colorful and abstract.

It should be art.