What Does “Do Your Due Diligence” Mean?

As an adult, you have a responsibility to look after yourself and your best interests in all aspects of your life.

When you're a parent, you also have that same responsibility concerning your minor child or children.

Every day of your life, you face challenges in terms of making decisions.

Some decisions are pretty easy to make with no material downside to making a wrong choice.

At the same time, you’ll encounter times when your choices need to be made carefully because a bad determination could adversely affect some aspect of your life.

It's not always easy to distinguish between riskless decisions and those with outcomes that carry serious potential risks.

Since decision making is a fact of life, you need to get yourself in the habit of not jumping to rash decisions in favor of doing what is referred to as “due diligence.”

What is Due Diligence?

First, you should know that due diligence is a common term heard in business, financial, and legal matters.

In that regard, the Merriam-Webster Dictionary defines due diligence as: “the care that a reasonable person exercises to avoid harm to other persons or their property.”

Knowing this, you can take this definition and substitute yourself as the other person.

In other words, doing due diligence for yourself would entail taking the necessary steps to keep yourself and your property safe from harm.

What kind of harm are we referring to?

Whatever ways you or your property could suffer harm. That might include financial harm, physical injury, emotional/mental harm, waste of time, lost opportunities, or damage to your personal property.

The Decision-Making Process

When confronted with the need to make a choice, you always have the option to “wing it” and make a rash decision.

More times than not, these hasty choices will result in unfavorable outcomes.

To avoid that, you should adopt a process in which you take reasonable care to gather available information and the existence of specific facts in order to make educated decisions.

Going through the decision-making process requires that you consider all of the possible outcomes based on each decision you might have to make.

Of course, there will be easy choices requiring very little due diligence, such as what to make for dinner tonight.

Conversely, there are many kinds of determinations you'll make, such as starting a business or evaluating a real estate investment opportunity,  that need a lot of due diligence to ensure you make the best decision possible.

Due Diligence in Financial Matters

If you're like most people, you have limited financial resources. That should translate to you having to and wanting to be as cautious as possible with how you spend your money.

To illustrate what it means to do your due diligence regarding financial matters, we want to use an example that should be familiar to most anyone – the purchase of a car.

Doing Due Diligence When Purchasing a New Car

If you buy a new vehicle, it's reasonable to expect it to look pristine with everything operating at optimal levels.

Any due diligence you might do related to buying a new vehicle will likely be directed at your own personal limitations and preferences.

For instance, the purchase price might be a significant factor in the selection of a new car. That will force you to focus only on vehicles that fall within your budget guidelines.

Researching the prices of vehicles and aligning them with your budget is, in fact, doing due diligence.

Doing due diligence when buying a new ride might also include looking at and researching things like:

• Warranty programs that an automotive manufacturer offers
• Price comparisons between multiple dealerships
• Looking for specific accessories and options
• Determining the projected cost of annual maintenance
• The gas mileage a particular vehicle might offer
• The price of auto insurance tied to a specific year/make/model of car
• Exterior and interior color options
• Availability at local dealerships
• Vehicle reliability reports and ratings (J.D. Power, Consumer Reports, etc.)
• Customer reviews

These are all relevant considerations for anyone looking to buy a new car.

The more of these questions you can find answers to, the more likely you are to land on the right car for you based on your circumstances.

You will have done your due diligence, leaving you with the ability to make the best determination possible.

Due Diligence When Buying a Used Car

While you would research or investigate many of the same things when purchasing a used vehicle, there are more unknowns, and those unknowns can only be uncovered by performing additional due diligence.

Let's say you are leaning towards buying a used car. Right off the bat, you would want to investigate the history of any vehicle under consideration.

You would want to research and ask questions about things like:

• How many prior owners the vehicle has had
• The reasons prior owners or the current owner of the car is selling
• If the vehicle has been involved in any accidents
• You might inquire about warranty repairs and ask to see maintenance records
• You would want to verify the “fair market value” of the car (Kelly Bluebook)
• Any kind of warranty or guarantee

Buying a used car comes with more risks than a new auto purchase. That's why doing due diligence when buying a used vehicle demands more questioning and research to get to the best decision possible.

Legal Ramifications of Not Doing Due Diligence

Performing due diligence is for your benefit. It's you and the interests of your family that you're charged with protecting.

There could be legal ramifications if you make hasty decisions or decide to forego doing proper due diligence.

Using the used car buying scenario as an example, the dealership might ask you to sign a waiver that you're willing to accept a used car “as is.” There's nothing wrong with doing that as long as you have asked relevant questions and received reasonable answers.

That's all part of doing your due diligence.

If you do this, it might help you have some recourse if something goes wrong and there were material misrepresentations.

Should you not ask key questions and get answers to uncover information, you lose any possibility of recourse once you sign that “as is” document.

If you drive that car off the lot and it stops running, drops the transmission, or the engine blows up, it's on you because you did not do your due diligence.

The consequences of not doing due diligence can be severe.

In this case, without an emergency fund or sinking fund for automotive related expenses, you could find yourself in financial hardship.

Other Applications of the Due Diligence Process

If something will affect you or a loved one, you have a right to know as much about that thing as possible.

You might receive some information voluntarily, but it would still be up to you to fill in the gaps so you can make an educated decision.

We used the car-buying example because it's something almost everyone has or is going to encounter sooner or later.

With that said, there are many other major decisions you'll face in your life; decisions that you need to understand the effects of no matter the potential outcomes.

If a doctor tells you that you need heart surgery, you can accept the prognosis and have the surgery.

Your other option is to ask questions, get a second and even a third opinion, and contemplate the possibilities of other treatment options.

That's performing your due diligence.

The due diligence investigation process can be applied to significant decisions like:

• Choosing a career
• Buying a home
• Accepting a job
• Picking a college
• Looking for a life partner
• Deciding whether to have kids or not
• Choosing where to go for vacation
• Moving long-distance to lower your cost of living
• Buying stocks or other potential investment opportunities
• Starting a business or purchasing a franchise

The list is near infinite.

The quality of your life will always be dictated by the decisions you make.

The most successful and happy people tend to be the ones who proceed with caution about everything they have to make a significant decision on.

Making Smarter Decisions

No one suggests that you can't make a rash decision about where to eat dinner. Again, the cost of a wrong choice would be minuscule.

While having all of the information possible before making a decision will not always lead to you making the right choice, it absolutely reduces the risk of harmful or wrong outcomes.

By the way, doing due diligence might lead to choosing between multiple bad decisions.

Still, gathering as much information as possible during a due diligence period will almost always ensure you arrive at a decision with the least amount of repercussions.

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