Smart incentive use begins with good upfront due diligence on recipients and proposed investments. This post provides a quick refresher on why it is important to conduct background research on incentive applicants and the essential steps in the process.

Problem prospects can drag down economic development efforts, but due diligence on companies seeking incentives can help economic development organizations:

  • reduce risk
  • refine strategies and recommendations
  • identify conflicts of interest or past legal problems
  • improve accountability to stakeholders

If you are considering offering incentives to a company, here is what you should know about that firm:

  • Company facts: year established, employees, revenue
  •  Description of products or services
  •  Location of existing operations
  •  Major customers
  • Growth projections and strategies
  •  Recent restructuring and management changes
  •  Executive background
  •  Ownership details
  •  Company credit rating
  •  Financial structure
  •  Bankruptcies, litigation and criminal records, non-payment of taxes
  •  History of past incentives negotiations
  •  Recent news

Due diligence on companies allows economic development organizations to be a more equal partner in negotiations with applicant firms and to identify red flags that might indicate a potential problem deal. 

Economic developers are also increasingly expected to offer greater accountability and transparency for their incentive decisions. Due diligence can identify past problems, weak business prospects and questionable finances that might keep the community from achieving its expected return on investment.
In short, the more you know about a company, the better deal you can create for both the business and your community.