When I conduct due diligence on the business itself, I want to figure out the inner workings of the company and how it operates. Some questions I ask myself when it comes to business due diligence include:
• Is the company’s business model sustainable over the long term and has it established an economic
moat (an advantage over its competitors)?
• Has the company proven its ability to grow its earnings?
• What’s the company’s core business?
• What risks are posed to the company?
• What problems or unmet needs does the company solve or fill?
That’s the barebones when it comes to business due diligence. If I don’t have a clear answer or am
uncomfortable with one of the answers, then I’ll pass on the investment — or put it on a watchlist for
the future.
Of course, business due diligence is qualitative and there really is no right or wrong answer here. It’s
all based on an investor’s personality and view of the world.
Don’t worry if any of this sounds unfamiliar to you at all, I will show you in a later section how I conduct my due diligence. That way, you can get an idea of how I think about investments.
I think is equally as important as business due diligence is financial due diligence. However, financial
due diligence is more black and white, and is quantitative in nature. If you’re not a math whiz, don’t
worry because the basics suffice and there are free tools out that have already calculated some important financials for us.
What’s more important is understanding how to analyze financials