How to Conduct Business Background Checks Effectively

As a small business owner, you need to know how to watch your back if you want your company to be successful. This includes knowing how to effectively conduct background checks on your potential clients and business partners. You just can't afford to put either your reputation or your cash flow on the line.

As consumers increasingly head online to make purchasing decisions, many small business owners seem to have become obsessed with a new kind of ROI- Reputation On the Internet. Yet it's amazing to me to see that some of these same companies do not seem to hold their suppliers and business customers to the same degree of scrutiny.

So much lost time and money could have been averted had the busies owner made an effort to check the company's credit rating, financial status, online reputation, and legal standing! If the company is a registered one, then much of this information is available online (and off), and a lot of it is free. You just need to know where to find it.

If you are relatively new to conducting background checks on other businesses, then here are few tips to keep in mind:

Start with a simple Internet search.

Doing an online search for a business' name should give you an initial glimpse of the company's web presence. This includes the company web site as well as any posted articles, reviews, press releases, or other online references. Just keep in mind that you may have to dig a bit to get an accurate picture. You should make it a point to look past the initial search results page and look up common complaint keywords next to the business name in case the company is trying to bury any negative information.

Look at the company's financial profile.

Make it a habit to check company profiles before entering into any business transaction. In the U.S., the three credit bureaus, Experian, Equifax and TransUnion provide extensive credit and financial reporting on millions of companies. Armed with this information, you can assess another company's operational health and its ability to pay off a debt. You will have to pay a small fee to access this information, but if the company is privately held then it may be worth it to get a glimpse into it's financials. Finally, if you are going the paid route, you may want also want to check out the background checking services offered by LexisNexis.

For publicly held companies, the Security and Exchange Commission provides financial and business information about publicly held companies via EDGAR the Electronic Data Gathering, Analysis, and Retrieval System. All companies, foreign and domestic, are required to file registration statements, periodic reports, and other forms electronically through EDGAR. Anyone can access and download this information for free.

Check out the company's local reputation and references.

Ask the business for a list of current references. This list may include clients, partners, vendors and creditors. Make sure to get in touch with at least three of the references provided. You can also check out the local Chamber of Commerce and Better Business Bureau to see if they have any information on the particular company.

Conduct a legal background search.

Search for any lawsuits, judgments, liens, and bankruptcies connected with the company, as well as any criminal records held by its owners or management. The issue of litigation, either past or present, is vital in understanding the scope of the business practices. Have the company or its executives ever been sued? Are there any records of judgments or liens outstanding? Such information, especially if repetitive in nature, is significant. You do not want to do business with or hire a company that has been repeatedly sued.

Accessing legal information on your own will take some leg work, and you may not be able to locate everything on a company. But you can get some information. Here is a list of state court websites where you can conduct business name searches; make sure to also check the local media for any mentions of legal activity. On a broader scope, you can search the company name on government websites, such as the Department of Justice and the Federal Trade Commission.

Keep tabs on economic and industry trends.

Finally, when conducting a business background check you should make sure that you are in touch with the current economic and industry trends. These trends will determine the backdrop in which the business in question is operating. This will help you to establish a set of quality benchmarks and give you a big picture look at how the business is performing.

In short, by making the effort to conduct an adequate business background check on a company before entering into a business transaction with them, you will potentially save yourself a great deal of time and money down the road. You may also be saving your business from irreparable harm. And none of those things should be taken lightly.