Due diligence on companies seeking incentives (recipient) and a thorough business case analysis for incentive projects (deal) can strengthen your hand during incentive negotiations and lead to better outcomes for your economic development organization and community. Here’s how:
- Leveling the playing field – Companies come prepared to negotiate. They’ve hired site selection and/or financial consultants. They’ve studied past deals and compared offerings among locations. Economic development organizations should similarly study the company, examine its finances, and research its experience in different locations, especially the past use of incentives.
For major projects or prospects without a strong track record, you can also hire third-party experts to help analyze the merits of the company, the project and the incentive proposal.
- Reducing risk – Companies are essentially seeking financing or other business services that help them lower costs and mitigate the risk of their investment. The community is taking on some of this risk through its incentive package. Due diligence and business case analysis can identify red flags, weak business models, and improbable growth forecasts that might keep the community from achieving its expected return on investment (ROI).
- Refining strategies and recommendations – Good up-front assessments allow you to prepare documented, defensible deals that can be presented to Board members, elected officials and the media. They provide a basis for informed discussion and decisions on whether to grant incentives. The more you know about a company, the better deal you can create for both the business and your community.
Due diligence is part of the Smart Incentives 4×4 Framework helping economic development organizations make sound decisions and use incentives effectively.
For more detail, also check out my presentation on Using Incentives to Achieve Community Goals.