Due Diligence for Small Business Owners: What You Can Do Yourself

From the desk of an accountant who’s helped small businesses protect themselves from costly surprises

As an accountant working with small business owners, I’ve seen firsthand how powerful due diligence can be—not just for big acquisitions or investor talks, but for everyday operations. In fact, I’ve watched business owners save themselves from bad hires, fraudulent suppliers, or expensive partnerships—all because they took time to ask the right questions and review the right documents.

If you're a small business owner, here’s something I want you to remember:
Due diligence is not just for lawyers or accountants—it starts with YOU.

🧭 What Is Due Diligence?

At its core, due diligence means doing your homework before making a financial, legal, or operational commitment. It’s your internal process of checking if something (or someone) is truly what it claims to be.

It can apply to:

• Hiring a key employee

• Entering a supplier agreement

• Partnering with another business

• Buying a property or vehicle for business

• Or simply reviewing your own internal practices
  
  

📌 What You Can Start Doing Yourself (Even Before Calling Your Accountant)

Here’s a list of practical due diligence steps you can do on your own:

✅ 1. Check Business Permits and BIR Registration of Suppliers or Partners

Before transacting with any new supplier or service provider, ask for:

• Mayor’s Permit

• BIR 2303 (Certificate of Registration)

• Official Receipts or Sales Invoices
  
  

💡 Why? If they’re not BIR-registered, you can’t claim input VAT or deduct the expense for tax purposes. I’ve seen clients lose ₱50,000+ in VAT claims just because they didn’t check this.

✅ 2. Do Background Checks on People You Hire or Partner With

Look beyond the resume or sales pitch. Ask:

• Do they have a history of unpaid debts?

• Have they worked with similar businesses before?

• Can you talk to a previous employer or client?
  
  

Trust is important—but trust with verification is smart business.

✅ 3. Review Contracts Carefully Before Signing

It may feel tedious, but reviewing the fine print can save you from legal and financial headaches.

Watch for:

• Hidden charges or penalties

• Unclear refund policies

• One-sided clauses (especially in lease or supplier contracts)
  
  

If you’re unsure, consult your accountant or lawyer—before you sign.

✅ 4. Match Receipts and Payments Monthly

One of the simplest forms of internal due diligence is matching actual payments to supporting documents.

Example:

• If your business paid ₱25,000 to a consultant, do you have an official receipt?

• If you made a purchase online, did you print the invoice and proof of payment?

🔎 I help clients spot red flags just by doing this regularly—like duplicate billings or unrecorded cash withdrawals.

✅ 5. Revisit Your Own Business Systems

Due diligence isn’t only for external risks—it applies internally too.

Ask yourself:

• Are your daily sales recorded properly and supported by Invoices?

• Is your staff using personal GCash or bank accounts for business?

• Are tax deadlines and payments tracked properly?
  
  

📌 One of my clients discovered a recurring late filing penalty because their team forgot to monitor quarterly deadlines. A simple checklist fixed that—and saved thousands in penalties.

🛡️ Why Accountants Matter in Due Diligence

While you can start due diligence yourself, an experienced accountant plays a vital role in:

• Interpreting financial documents

• Detecting tax compliance issues

• Ensuring proper documentation for audit-proofing

• Helping you set up internal control systems to prevent future risks
  
  

I always tell clients: due diligence isn't just about checking things—it's about setting up a system that works even when you're not looking.

💬 Final Thoughts: Start With Awareness, Grow With Systems

You don’t need to be an expert to start doing due diligence. You just need to stay curious, be cautious, and ask for documents.
Over time, these small habits grow into powerful systems that can save you from serious losses.

And if you ever feel overwhelmed, remember—you’re not alone.
Your accountant is here not just to file forms, but to help you build a safer, stronger business.