You are the founder want to raise capital? If so, your financial home may need a little spring cleaning before you open the door to potential investors.
As a growth stock investor, we meet many founders who are well versed in the day-to-day operations of their business and have some of the major financial pillars. They have a basic accounting system, they know how to budget, and they have policies and procedures for receivables and payables.
This is a great start, but investors tend to subject your operations and finances to a different level of scrutiny, and they have much higher expectations about how “good” or “great” looks.
This is the difference between inviting a friend to dinner and preparing for an open house. With a friend, you could tidy up and put a few things in the closet. If customers come to you to look around, they will open this closet.
It’s worth being prepared.
What investors want to know
During due diligence, every investor is looking for an accurate view of the performance, value, and potential of your business. They build this picture through a series of data and information requests to try to answer the following important questions:
Capitalization tables are one of the most important documents your company should maintain. If you don’t have one, create it now.
- What is your historical business performance?
- How do you think and plan for growth?
- What is the ownership structure?
- Who are your key clients and what is the nature of the work you do for them?
- How do you manage a business? What is your wastage, usage, bill rates, etc.?
- Are there unresolved risks?
The details of each due diligence process look different, but you can count on one thing: having a plan is key. It takes effort and hours to gather, verify and package all this information for external review, so it’s good to know what data and documents you’ll need well before you start the process. Otherwise, it can become a real distraction for the business.
Let’s take a closer look at each of the six standard information queries and what investors are actually looking for when they dive deep into your data.
Annual and monthly financial statements
Financial reports provide an overview of the state of the business, as well as a quick overview of year and month growth.
Credit: techcrunch.com /