Due Diligence vs. Background Check: What Are the Differences?

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Due Diligence vs. Background Check: What Are the Differences?

Business owners must routinely balance very diverse activities, such as applying hiring best practices and managing inventory levels. Protecting the integrity of the business is one of the more important tasks that a business owner faces.

In this case, integrity doesn’t mean reputation, but rather the business’s ability to keep doing business over time. That typically means making careful decisions about who the business hires and takes on as partners.

Due diligence and background checks are two of the ways business owners do that. Not clear on the due diligence vs. background check differences? Keep reading for an overview of the differences.

What Is Due Diligence?

In business, the term due diligence typically applies to another business. Let’s say that a company approaches you looking for a partnership. No sane business owner wants a partner with terrible debt or borderline illegal hiring practices.

With due diligence, you dig into the company’s books, talk with current and former employees, and directly ask about troubling things you learn.

In recent years, many businesses take a similar approach with new hires. They ask for a lot of information and then do their best to confirm it. If troubling things crop up, there is a conversation.

What Is a Background Check?

A background check is a somewhat different animal. In most cases, it only applies to potential new hires for a company. A background check runs an individual for a variety of things, such as:

  • Criminal records
  • Financial legal actions
  • Debt collection
  • Credit history
  • Employment history
  • Education

In essence, the background check looks for things you may have lied about. It also looks at things that might make you a likely candidate for activities like workplace theft.

Due Diligence vs. Background Check

In some ways, due diligence and person background checks are looking for similar things. In short, they are ways for a business owner to decide if they want to work with you.

In practice, though, due diligence and background checks address different areas of the business. Due diligence typically happens when businesses look at going into business together. In new-hire terms, you typically see due diligence with corporate positions.

Background checks are far more common with applicants for lower-end jobs in industries like retail or food service. The goal is typically for the business owner to decide if you will prove a risk for things like theft or property damage.

Jobs with security elements will also routinely use backgrounds checks.

Due Diligence, Background Check, and You

The irony with the due diligence vs. background check divide is that the exact same business owner may well end up using both. For example, you might run due diligence on a business you want to buy or one that wants to partner on a project.

At the same time, you may run background checks on most of your employees as a basic precaution against theft or other undesirable behaviors.

Looking for more on business management? Check out some of the posts over in our Business section for more ideas, tips, or insights.