We believe strongly in the value of good, up-front analysis to mitigate the risk of offering incentives to a company. Here some guidelines adapted from my colleague Jon Roberts of TIP Strategies on the essential factors a community should know about a business to assess if it can meet expectations and help achieve economic development objectives.

Structured due diligence is important because many communities, seeing what appears to be a viable prospect, are overly confident in the company’s ability to perform. Granting incentives is a form of investment and should be treated with the same care as any investment.

While due diligence strives to be exhaustive, not all topics will be relevant for each opportunity. The first five categories listed below – reference check, litigation review, business overview, project information and financial review– represent the minimum level of information that should be assessed.

Reference Check

  • Background check on company principals
  • Call personal and company references

Litigation Review

  • Status and outcome of legal actions against the company or principals, including bankruptcy proceedings

Business Overview

  • Basic financials – balance sheet, income statement and cash flow statement
  • Products & services
  • Company strategy
  • Board members
  • Industry description and basic market trends
  • Red flags, such as name changes, turnover among principals, negative news

Project Information

  • Employment and investment
  • Company’s objective
  • Use of requested financing (Working capital? Real estate or leasehold improvements? Research?)
  • Other funding sources
  • Operating Plan – does it make sense and is it appropriate for your community
    • Labor requirements
    • Proximity and access to distributors, suppliers and customers
    • Utility requirements
    • Site and building needs
    • Lease versus purchase
    • Operational processes
    • Quality control requirements

Financial Review

  • Financial statements for past 3 years
  • Interim financial statements (current)
  • Projections – pro forma balance sheet showing effect of financing, 2-year project P&L, cash flow statement, project break-even analysis
  • Review assumptions and accounting notes
  • Ratio analysis – debt/equity, quick ratio

The following factors are especially relevant for companies introducing new products or services. As more communities incentivize small and entrepreneurial businesses, they need to conduct thorough due diligence to understand the risks involved in providing public resources to these firms.

Product Development

  • Technology and design issues
  • Milestones for completing development work
  • Expected time to market
  • Key technical personnel
  • Risks
  • Costs
  • Testing
  • Patent status or other technology protection

Market Analysis – environment in which the company must compete

  • Market potential for products and services
  • Customers – characteristics and purchasing patterns
  • Market size and trends
  • Market niche
  • Competition
  • Expected market share

Sales and Marketing Plan

  • Target markets and timing
  • Sales and distribution
  • Pricing
  • Promotion
  • Marketing strategy
  • Export development

Management Team

  • Organization – role of key managers and proposed organizational structure
  • Resumes for key personnel
  • Ownership
  • Board of Directors
  • Management assistance and training needs
  • Supporting professional services


  • Key milestones

Critical Risks and Problems

  • Risks likely to be encountered and the plan to minimize those risks
  • Sensitivity analysis on effects of changes in sales, costs, and cash flow
  • Capitalization