Many people think due diligence requires detective skills or access to special databases. While these qualities certainly help, I want to de-mystify the process of vetting a new partner and show some basic skills and techniques that anyone with an internet access can do in a short time. Therefore PPE Consultants is launching a series of articles over the coming days to teach you how to make a killer due diligence on future partners. However I must emphasize that these techniques only work if they are carried out with the right mindset. The greatest enemy you face is your own wishful thinking that can blind you and make you ignore hard facts. So please, if you implement the techniques I will write about, always try to be as impartial and objective as possible.
Who knew that the old reliable searching machine is one of the most efficient tool to carry out an investigation on new suppliers and clients? However you have to use it properly and effectively. For example, many people do not know that if they use quotation marks (“like this”), Google will only search for the exact same phrase and ignore all other content. (You can find more about these tricks by reading this article.)
This is quintessential. For instance, we had a buyer once where my friend Jacob found a court document of an old lawsuit. It turned out, the owners of this company were sued for having committed fraud with fake banking documents. We were baffled and immediately terminated all contact with them before they cause us or our supplier any harm too.
But the lesson we learned is to always search and read everything about your potential buyers and sellers. Search everything and everyone related to them. The company, the owners, the CEO, everyone. You’ll be shocked how many information you can find about somebody if you know what phrases to use in your search.
So how to do it?
Let’s say I’m looking for Company X with owner Mr. John Doe. I search first for “Company X”. With quotation marks so that Google will know that I don’t want to see results where both the word Company and X are separately in the text. After that I read everything related to the company. Where are they located? When were they founded? Did they had lawsuits and court cases? Do they have references? This already gives me a few ideas what my next searches should be. I also conduct a similarly thorough search for the owners and officers of the company. How long are they in the industry, where they have worked previously etc. Anything.
What to look out for
Court cases, previous experience in their respective industry, references, partnerships and nothing. And by nothing I mean literally nothing. If I cannot find anything about a company it is usually an alarming sign that they lack experience or that they are just some shell company created for fraud. Real companies and real people usually have an online presence and digital footprint. If you don’t find anything, it is mostly because of two reasons: they are scamming or are new. But if it’s the latter the owners and executives must have some kind of an online footprint. If this is lacking too, you already know it is a scam.
Google is a good tool for finding databases as well. If you type in a company’s name, it will show you company databases (like Companies House in the UK or D&B). Here you can find additional sources of valuable data. These include financial information, owners, dates, revenue etc.
A company with a revenue of 5 million dollars claims to be an allocation holder for twenty million boxes of nitrile gloves. If we calculate the average price of a box at $8, and the usual upfront payment that is required to have production capacity (30%), that already brings us to the conclusion that this company had to put down 48 million dollars to the factory upfront. (8*20,000,000*0,3 = 48,000,000) If a company has only 5 million dollars in revenue, and no big financier or parent company behind it, there is no way their proposal is real. And let’s be honest: if they are not the one financing the deal, there is no way anyone would pre-finance it for them without already having stable buyers for that.
The proper use of Google Maps
Google can also help with an additional tool as well: maps. Google Maps is crucial to determine size and capacity of a company. If somebody says that a big stock is in their warehouse, check the address. If you find that the “warehouse” is in reality just some garage in an outskirt, you better be cautious.
The same analogy also works for factories, especially in distant countries. Many so-called manufacturers lie about their production capacity. It is fairly easy to determine that to produce millions of gloves or syringes you need a spacious factory. Try to evaluate the size of the production plant, and if something seems fishy, avoid them.
Reverse search of documents
This is also a valuable trick of Google: it can search public documents. If you receive a document and you are unsure whether it is real or modified, try to search for a few phrases in it (again with quotation marks). If the exact same sentence has been used in a document that is public to Google, it will find it. This especially helps when it comes to documents that often get re-cycled by joker brokers and scammers like Letters of Intent or Letters of Attestations. If you receive a document and you find it’s original version on Google, you already can draw your conclusions whether the request or proof is legitimate or not.
In making due diligence Google is always the first line of defense. Despite it being “just a search engine”, it can be used in an incredibly versatile manner to find information about somebody. I certainly hope that some of the practices I described can help others avoiding fraudsters, or at least make them more suspicious about new offers. In the next article we’ll dig deeper into more sophisticated practices such as metadata extraction from emails and documents to double-check their originality. So stay with us, because we have a lot more tricks up our sleeves.