Let’s face it – no one likes to be scrutinised. And when it comes to business scrutiny, there can be few things more stressful than having a due diligence conducted on your company by an organisation to which you have applied for finance. Given that so much hangs on their decision going in your favour, it pays to be prepared. As Petro Bothma from Business Partners points out, “The more information you can provide the better.” Here are some tips to make sure you put your best foot forward:
1. Familiarise yourself with the process:
Understanding what is involved in the due diligence process will help you to make more thorough preparations, and reduce your stress levels. Simply put, a due diligence is an information-gathering and assessment process whereby a prospective financer (or buyer) will look at all aspects of your business, from top to bottom and inside out. They’ll be checking the financials, profits, tax issues, projections, shareholders, staff issues, property and location, assets, debtors and creditors, the market – absolutely everything – all to determine how viable the business is and whether it is worth investing in.
2. Get started early:
Dragging your feet does not help in business, particularly not when it comes to the due diligence process. Remember that you are asking a prospective funder to look at your business and then give you your much-needed finance – so make it easy for them. As soon as you know that a due diligence is going to be conducted on your company, start getting things in order. Make sure you know where all your important documents are. Be proactive and ask upfront for a list of what will be needed – in some cases you will need to provide original documentation and this can take time to access. Remember that the longer you take to give the prospective financer what they need, the longer you’ll need to wait for the capital injection.
3. Prepare your business plan:
Bothma indicates that this is perhaps the most vital aspect of a due diligence so make sure you get it right. A good business plan should contain an executive summary; a business overview including business profile and description of the product and service; a management section providing detail on the business owners, their CVs, skills and experience and an overview of the management structure; an industry and market analysis with relevant statistics; the sales and marketing strategy; financial statements and projections; an overview of the legal and regulatory environment; a SWOT analysis and risk/reward assessment; and appendices and supporting documentation.
4. Know your strengths and weakness:
As Bothma points out: “The entrepreneur can make or break a business.” A thorough due diligence will include an assessment of you as the business owner. It will asses your business and entrepreneurial skills, experience, tenacity, resilience, drive, energy and track record. Prepare for this process by making a list for yourself detailing your strengths and weaknesses. If you are applying for finance for your start-up and don’t have a track record in being a successful entrepreneur, look to other areas of your life that showcase your skills and successes. These might include things you have achieved in your career up to now, or in a hobby or sport. Where you identify weaknesses and gaps, work out how you are going to resolve them. Contact a mentor and discuss how they might be able to help you. It’s all about having the answers to hand and showing that you’ve thought about everything, should you be asked.