The Meaning and Importance of Due Diligence

Posted by Fitz Villafuerte under Investing on September 19, 2008

What is due diligence and why is it important to have one?

When I first heard this phrase a few years ago, I just assumed its meaning contextually. I took the root word, diligent, and concluded that due diligence is just another synonym for being industrious or hardworking or in Filipino, masipag.

When someone says, “You must have due diligence.” I simply took it as an advise and a reminder that I shouldn’t be lazy.

Through my experience in business and investments, I’ve come to realize that having due diligence is actually more than just being diligent. I discovered that due diligence is actually a process and a necessary task for all smart investors.

I’ve learned that having due diligence means doing a reasonable investigation to check the potential and security of an investment, endeavor or transaction.

In layman’s terms, having due diligence means making sure that you’re not about to do something stupid with your time and money.

Okay, you might now be thinking that all this is just common sense. Of course anyone smart enough to invest would ensure that everything is legal, in proper order and most importantly, profitable, before they shell out a single cent.

Yes, it may seem simple in theory but in reality, due diligence is and should be a thorough and complete process. This means having due diligence is all about validating facts, eliminating assumptions and digging more information about your investment.

due diligence The Meaning and Importance of Due Diligence

To better understand all these, let us take an example and learn how we should apply due diligence to a sample situation:

Due Diligence Checklist for Make Money Online Opportunities

One day, you tried searching easy income opportunities that are available on the internet. The results were surprising. It seems that there are many ways you can make money online.

You discovered that you can earn from answering surveys, from writing essays, from uploading videos and photos online, from blogging and many others.

A lot of them look very promising but one particular income opportunity took your interest. What do you do next? The answer is to conduct due diligence.

  • Who’s going to pay me? What’s the name of the company?
  • Is it a legal entity with a reputable business background or just a shady domain?
  • Have people really earned from this? Is there a significant number of online testimonials that prove the authenticity of this income opportunity?
  • How trustworthy are these people that claim that they’ve been paid by the company? Have these people shown convincing evidence of payments?
  • What exactly does the income opportunity require from me? More importantly, do I have enough skills, time, money and other resources to accomplish these tasks?
  • Are there risks involved in pursuing this opportunity? What are they? Is the level of risk tolerable for me?
  • What is the worst case scenario if I pursue this? How will this pessimistic outcome affect me?

These are just some of the questions that you need to answer for due diligence. Taking on this inquisitive attitude will help you avoid financial losses and prevent you from wasting valuable time and effort.

Moreover, keep in mind that the above mentioned due diligence checklist is just an example and you may need to ask more questions to address all pertinent issues involved for specific online income opportunities.

In any case, I believe that these questions are enough to get you started in your due diligence process. So why don’t you give it a try and check out the various online income opportunities I’ve already written here in my blog. icon smile The Meaning and Importance of Due Diligence

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6 Responses to “The Meaning and Importance of Due Diligence”


  1. Mahalia says:

    This is a good post. We are just about to do some investing tomorrow–offline. And yes, we did our due diligence and researched and interview people. It seem like a good investment. It’s a long term investment though, we have to wait a few years before cashing out. Thanks.

  2. Due diligence is simply investigating every details before entering into a financial decision. I first heard of this phrase during my first employment as an underwriter of portfolio of distressed assets composed of non performing loans and foreclosed idle assets in a multinational asset management firm. Due diligence in our case means checking every detail of a particular account before we buy it. It is a very thorough process but it makes you eliminate the probability of a loss in a business.

  3. Fitz says:

    @Mahalia
    Thanks for the comment. Due diligence is important specially for long term investments.

    @Aspiring Entrepreneur
    Although I believe that you cannot eliminate all the probability of a loss, having due diligence brings it down to very low levels. :) Thanks for sharing your thoughts.

  4. Lee Angelo says:

    Due diligence can also be applied when applying for a job. Before going into an interview, make sure you were able to research the company well. This will surely help you during the interview proper. It will also give a good impression on you that you’re serious about the job. Great post!

  5. Ankesh says:

    Fantastic, I have searched a lot about due diligence, but you explanation is really a practical one. Its a good starting point to understand about DUE DILIGENCE.

  6. Luke Ajibola says:

    Fantastic!

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