Due diligence is a crucial component of fundraising processes. It could be reviewing a potential donor’s financial history or identifying reputational risks, comprehensive due diligence analysis can help ensure that philanthropic partnerships are both productive and ethical.
However, the process is not without its challenges. Inequal implementation and resource allocation can result in a patchy approach that is inconsistent and has the potential to cause distrust among donors. Data protection concerns can also arise when nonprofits do not comply in their obligation to safeguard sensitive information. The misuse of donor information is a growing problem for the entire industry.
It has never been more vital to conduct thorough due diligence research. In this day and age, information spreads fast and reputational damage can last a long time, particularly for nonprofits.
It’s also important to start early. The delay until a prospective client is identified and analyzed is often a sign that reputational risk issues are discovered way too late, and could waste time and resources on a relationship that is against the company’s values.
The most important thing is to have an unifying, standardized policy that has clearly defined criteria for reviewing. It’s easier for teams detect risks and deal with them before they become a problem. It’s also helpful to have an all-encompassing repository for all documents related to due diligence so that you can provide them to investors upon request. A scalable automated data room could make a big difference.