Due diligence, the investigation a funder conducts before committing capital, is often thought of as something done to a business, but preparing your own genuine due diligence readiness in advance protects the founder as much as it satisfies the investor’s process.
This is what a founder should genuinely have ready before due diligence begins.
Genuinely accurate and complete financial records
Financial statements, tax filings and cash flow records that are genuinely accurate, complete and consistent with each other are the foundation of a smooth due diligence process, and inconsistencies discovered here damage investor confidence considerably.
Our guide to the fundamentals of conducting a business audit properly covers building this kind of genuinely reliable financial record-keeping.
Genuinely clear legal and compliance standing
Proper business registration, valid contracts, and clean compliance history across tax, labour and any sector-specific regulation all need to be genuinely in order, since a legal issue discovered during due diligence can derail a deal that was otherwise progressing well.
Our guide to the genuine legal requirements for starting a business covers this foundational compliance in more depth.
A genuinely well-documented ownership and equity structure
Clear, properly documented records of who owns what stake in the business, and any existing agreements affecting that ownership, prevent a confusing or contested ownership picture from complicating or stalling a funding round.
This documentation matters even for a business with a small number of founders, since informal understandings can become genuinely contested once real capital is involved.
Genuinely realistic financial projections
Projections that are genuinely realistic and clearly explain their underlying assumptions hold up far better under investor scrutiny than optimistic projections that can’t be credibly defended when questioned.
Our guide to what financial modelling genuinely is covers this, and an accountant registered with the Independent Regulatory Board for Auditors can help verify these projections independently.
Frequently asked questions
Is due diligence only something done to a business?
No, preparing your own due diligence readiness in advance protects the founder as much as it satisfies the investor’s process.
What financial records need to be genuinely ready?
Statements, tax filings and cash flow records that are accurate, complete and consistent with each other.
Why does legal and compliance standing matter for due diligence?
A legal issue discovered during the process can derail a funding deal that was otherwise progressing well.
Why does ownership documentation matter before raising capital?
Informal ownership understandings can become genuinely contested once real capital is involved.
What makes financial projections hold up under scrutiny?
Being genuinely realistic and clearly explaining their underlying assumptions, rather than being overly optimistic.
