Question: Why is due diligence and transparency important?
Due diligence means you are collecting the proper information and ensuring you are aware of all the relevant facts. As the term transparency implies, it means there is a degree of openness and honesty. The recurring theme of October’s articles illustrate how important due diligence and transparency can be to business success.
Manage Your Business Banking Relationship
Part of financial due diligence in operating a business is having a financial representative (i.e. Owner, CFO, Controller, Business Manager) meet regularly with a bank representative. Prior to the meeting, create a
n agenda of topic areas. These should include things like:
- Future financial needs for expansions or acquisitions, like lines of credit or loans
- Best use of cash accounts like sweep accounts to maximize return and minimize expense
- Short and long term investment options for a practical liquidity tree
- Use of merchant accounts
Plus, in these times it may not be a bad idea to discuss the bank’s liquidity and financial stability, esp
ecially if you have money in non-insured accounts. Be prepared to ask questions that require details, not unresponsive platitudes. The bank sure doesn’t hesitate to grill you about your business when the money flows the other way.
Is Sarbanes-Oxley Improving Corporate Governance?
Again we find ourselves in middle of economic turbulence due in a large part to a lack of business ethics and sound business practices. Without the necessary transparency and due diligence, lies and deception can go unchallenged, particularly when people are being dishonest with themselves.
But wait a minute! Wasn’t Sarbanes-Oxley supposed to put an end to all that? Aren’t public com
panies, financial or otherwise, supposed to have internal control systems in place as well as checks and balances to prevent
unrealistic, overly optimistic projections and reporting? Obviously, though well-intentioned, SOX has not been as effective as it should be in preventing fraud, abuse, and intentional ignorance. Also, it apparently has not been successful at encouraging organizations to implement effective financial internal control systems and improve corporate governance.
Managing Financial Strategy Means Business Success
A clear strategy and plan not only incorporates goals and the activities needed to reach these goals, but it also addresses risks. Obviously, the risk of handing out loans for hundreds of thousands of dollars without t
he proper due diligence and transparency was not accounted for in managing the financial strategies of those lending/financial organizations now failing or on the brink of failure.
On That Note;
Answer to the question: Due diligence and transparency are important because being aware of the facts and avoiding deception (including deceiving yourself) can mean the difference between success and failure; between staying in business and going out of business. The current state of financial crises may have been avoided if those in charge of banks, lending institutions, regulatory offices, and even elected officials would have exercised appropriate due diligence and transparency.
