The decision to hire a business partner is a much bigger deal than looking at a website or reading through a short company description. A partnership can impact on finances, operations, customers, reputation and future plans. Hence, businesses should check a company prior to signing an agreement or sharing of vital details. Process does not have to be difficult, but should include areas that can impact the partnership.

Basic records, ownership checks, financial information, and reference checks can yield information. More important, every check requires a valid business rule to be made. If a company fails to give essential information about its activity, it should be given first priority as you move on to discuss further.

Therefore, how does a business validate a company prior to a partnership? The response begins with a formal evaluation. Rather than depending on one source, businesses should compare the information provided in multiple sources and check for consistencies.

Identity

Your first step is to verify the company, and how it works. Before forming a partnership, a business should be familiar with the legal name, registration information, business location, business management structure, and principal business. These details will form a basic record which can be used for subsequent checks.

The first step you need to take is to verify the company’s official registration. Governments might have company registries or other official databases from which it is possible to use, depending on country. Ensure that the legal name specified is consistent with the name used in contracts, invoices, bank information and business correspondence. If there is no clear explanation about the relationship between different names, request a company explanation.

Then, check the company’s address and contact information. An office address is provided on a website, however, this information does not always indicate that the business is located there. Look in business directories and registration records and other trusted sources, if applicable. While a large office is not a requirement of a credible company, the basic information should stay the same.

Ownership also matters. Nominate Directors, Founders, Principle Owners or other individuals, if available, who may have made major decisions in the business. With this review you can gain insights into who will be working on behalf of the company when it comes to the partnership. It can also detect potential conflicts of interest.

Then, check the company’s business history. Consider its length of service, its offerings, and if its current operations are consistent with its purpose. Questions may apply to a company that has recently transitioned from one business model to another.

Having information from multiple sources adds value to the review of the company information. Information on one site may be incomplete or out of date; official records and other sources might give more context. Having a comparison of the information helps to find differences before they become contract issues.

Last but not least, make sure to document what you discover. Maintain a record or notes of registration(s), company names, addresses, ownership details and records. This establishes a baseline to which later discussions can be compared. Once the identity check has been completed, the next thing to be done is to find out if the business can fulfill obligations.

Finance

Financial checks are used to gauge if a possible partner can support the responsibilities related to the proposed agreement. A company could provide a fantastic presentation and services that are beneficial, but the choices of partnership rely on its capacity to control payments, expenses, employees, suppliers and other responsibilities.

First, check financial records that are available. They could be annual reports, financial statements, tax records, credit information or other documents that are legal and appropriate for the company to provide, depending on the kind of business and its size. The depth of the review may differ because public companies tend to give more financial information than private companies.

Focus on income, costs, assets, liabilities, cash flow and over time. A single number is seldom the sole basis for information. Increasing revenues does not necessarily mean that a company has sufficient cash on hand to pay its short-term debts. Similarly, a company might be profitable but under pressure due to a shortfall in cash flow owing to delayed payment from customers or debt.

Check out payment records if applicable. When buying goods or services, inquire about payments to suppliers, billing to customers, refund policies and credit terms. Business credit reports may also include information regarding payment history and financial responsibilities, where permitted.

It should also take into account the financial impact of the partnership. Determine the costs, payment deadlines, deposits, credit terms, and potential penalties. When your company is exposed to large sums of money before it receives goods and services, take a close look at that exposure.

Financial data from the company can be used to provide some context on how the business has done in the past, but it may not be obvious what it means. Make comparisons across reporting periods rather than between the same period in two years. Search for big changes and pose sensible queries about them. If a spike in sales, a high debt or a drop in cash were to occur, additional discussions might be needed.

Also, it is important to know who makes the financial decisions. Sometimes payments or approvals need to be made in a timely fashion as part of a partnership, so it helps to know who is responsible for those payments.

Most of all, don’t assume you are judging based on the size when you are conducting a financial verification. A small business can run smoothly and meet its responsibilities effectively. The aim of the review is to get an understanding of the financial capacity in relation to the proposed partnership. When businesses realize this, they can shift their focus to evaluating performance and business conduct.

Reputation

A firm’s reputation can have an impact even if its registration and financing seems good. Information about the way the company manages its business responsibilities can come from Customers, Suppliers, employees and former partners.

First look at independent reviews and business references. Avoid looking for reviews just on the company’s website. Seek out customer, supplier, industry directories, industry networks and other sources that give independent observations.

Direct insight can be provided through references. Request references from the prospective partner from firms that were similar to the potential partner in terms of conditions. When inquiring of a reference, ask specific questions. Are there any deadlines the company has not adhered to?Has the company failed to meet agreed deadlines? When problems arose, was it communicating? Was it performed in contract manner? What was the payment process like and what about any service issues?

Online complaints should also be taken seriously but be given the context. There may be an issue but it’s not necessarily a severe one. Instead, try to find recurring patterns with the same problem. If multiple independent sources are claiming the same issue, reach out to the company to find out what the cause is.

Legal and regulatory documents could also be relevant. Look for relevant licenses, certification, regulatory actions or public legal records depending on industry. There are certain permissions that are required for some businesses. Establishing these requirements can help eliminate operational issues once the partnership starts.

Another useful test is the ability to communicate. Look for the company’s answers to questions during the verification. A business partner should be able to communicate general business knowledge without causing confusion. If the company refuses to answer questions in a reasonable manner, responds to the questions with different information or hastens you through the process to get your signature, stop the process.

Scrutine the company’s public business activity, too. Look for consistency in information across its website, social profiles, published materials and/or business records. Although differences are not necessarily a problem, unexplained differences ought to be investigated.

If reputation checks are provided, they should be based on facts. Don’t rely on rumours or individual views. Hone in on information that is certainly important to the partnership. A company may receive mixed reviews, but deliver the appropriate service, and a business that has limited online presence can still function.

This step is not about looking for a company that has no negative feedback, but about identifying a company that doesn’t have a lot of negative feedback. That’s rarely realistic. Rather, the purpose is to gain insight into the company’s actions when it is accountable, has a problem, a deadline, and customer expectations.

Agreement

Once the identity, finances and reputation are verified, the next step is to examine the proposed partnership. It is possible that even if the company may be ideal, the terms are not clear and that could cause issues later on. Careful review of the expectations each side has for the relationship should be part of a good verification process.

Establish the intent of the partnership. Describe what each company will do, what each company will get, and how you will know what was successful. Defining roles diminishes the risk that one party thinks they are entitled to receive something which the other party was never committed to delivering.

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Be careful to read the terms of payment. Compare the prices, payment dates, deposits, taxes, late-payment terms, refunds and other financial considerations. If the contract has repeat charges, specify when they will begin and how either parties can modify or cancel them.

Also, there must be clear and specific requirements for delivery and performance. In the event that the partner is required to provide products or services, reports, support and/or technical work, establish the expected standards and deadlines. Avoid general terms and phrases when using measurable terms wherever possible.

Attention to confidentiality should be given if the partnership involves the sharing of business records, customer information, product plans, pricing or other private information. The agreement must define the information to be protected, and how the information will be handled by both parties.

IP is important too. Identify who owns the content, software, designs, research, data, trademarks or other work produced in the partnership. When the relationship is commercial, the lack of clarity of ownership can cause problems even when it begins on a good note.

Then check out termination conditions. All partnerships should have a way of unwinding their partnership. Look at notice periods, unpaid debts, unfinished work, data return, confidentiality and other on-going duties post-expiry.

Have an attorney check the agreement (particularly if the partnership has money, IP, international, or regulatory components). Do not skip the business verification process because you read your contract through and then sent a letter of transmittal to the attorney. Rather, it provides an extra layer of security.

Lastly, compare the agreement with the information collected during verification. Is the name of the legal company consistent with the contract? Are the payment information consistent with the verified business? Are the services indicated on the website what they actually offer? Is there a legal process in place for determining authorisation of signatories by the company?

These checks relate the verification process to the real partnership. Rather than asking if a company is “trusted,” you’re asking if it’s the right company, is financially stable, is credible, and has the right terms of service for the relationship.

The first step to a successful partnership is to have clear facts. When business partners verify a business it helps to identify risks early, asks better questions and provides better understanding on what each party will bring to the table.

At the end of the day, validating a company before the partnership isn’t only a matter of validating a company, it’s a test of sense of business before the partnership. Check and double check the company, Check and double check the terms, and let the facts verify the decision.