Funding and partnerships can catapult an emerging food business forward - but only if the compliance fundamentals check out. For investors and other potential partners, regulatory due diligence helps illuminate safety, integrity, and compliance issues, highlighting possible risks to the business. Regulatory due diligence can also identify where a company’s strengths may offer a protective moat. Uncovering these opportunities early is crucial, and smart brands prepare proactively for the due diligence gauntlet—turning investor scrutiny into a strategic advantage.
Due diligence means taking a close look at an entire business. And in the food & beverage space, this means uncovering all facets of a company’s regulatory programs, food safety substantiation, and compliance status. Regulatory due diligence needs to happen before big events like a large investment, a merger with another company, an acquisition, or an initial public offering.
For a food company, regulatory due diligence involves exploring aspects like food safety programming, employee training, sourcing and supply-chain management, facility oversight and upkeep, and product labeling and claims. Due diligence may involve exhaustive staff interviews, document review, facility tours, and product sampling. It aims to uncover every piece of operations and business practices and looks for any problems related to compliance before further resources are committed.
For investors and partners conducting due diligence, unearthing regulatory red flags spotlights vulnerabilities that could undermine valuation and viability if not addressed.
Food regulations exist ultimately to protect consumers, and compliance issues can flag potential consumer safety problems, reputational risk, and risk of litigation. Weak compliance programs can also signal a systemic culture of undisciplined management and flagrant risk-taking.
An immature compliance system communicates to investors that a brand won’t be capable of scaling efficiently, especially with complex regulations and fast-moving policies. Conducting meticulous diligence enables financial partners to quantify the time, resources, and oversight needed for a growing brand to mature.
First, it’s normal for compliance programs to be a continuous work in progress as companies launch, grow and scale. The most critical focus area is ensuring that products are safe. Here are the initial steps your companies can take to proactively prepare for regulatory due diligence:
By prioritizing their most significant risks and implementing effective programs to address them, emerging brands can stay compliant, uphold product quality and customer trust, and make due diligence less daunting. Forward-looking brands should fully evaluate their operations and supply chains to identify and prioritize any food safety, quality, and labeling risks—then design and actively carry out right-sized programs to mitigate hazards and vulnerabilities.
Maintaining robust, documented programs, including safety plans, staff training, process controls, traceability measures, and recall procedures signals a dedication to quality, safety, and operational efficiency. When the time for due diligence comes, companies can readily showcase that they’ve developed a culture of safety, responsibility, and commitment to keeping customers safe.
Whether preparing for a funding round or strategic exit, a proactive approach to regulatory compliance will set you up for growth while protecting your consumers and brand reputation.
