Your financial statements won’t give investors complete comfort that their money will be safe. So expect them to conduct due diligence about your business. This is the process of researching your business and your personal and business background.
They are also likely to ring your referees and even check on the referees. So if you have had a failure in the past it’s best to be upfront and try to turn it into a positive learning experience.
Issues investors will check during due diligence include:
- how your key suppliers, customers and staff will react to their buy in
- the performance of your business to see if you’re doing what you say you are
- how your competition will react – if a large competitor might react unfavourably then a strategy has to be designed to offset this
- tax issues or hidden financial surprises, for example pending lawsuits or undisclosed liabilities
- your control functions such as internal auditing
- the reliability of and your relationship with your suppliers. A good relationship helps ensure sustainability of supply
- the accuracy and robustness of your accounting record system
- the state of any working models or prototypes.
The financial and business performance information you have already supplied will also be double checked
As due diligence experts sometimes specialise in certain industries they may either know more than you about aspects of your own business. If not they will use their own group of experts such as lawyers to follow up patent or trademark claims to make sure you own the IP or that your own lawyer has done a proper job.
You can smooth the due diligence process by making readily available any information or evidence sought by the investor. This can go a long way to reassuring the investor that you and your business are worth the risk.
