Due Diligence...it’s the words that can send a shudder through any founder. For any business that is either raising capital, wanting to sell their business or bringing on a strategic investor or partner - the process is inevitable.
In our experience helping businesses in this area, the request can range anywhere from Seed or Series A funding round to a multi-million dollar acquisition from a publicly listed company (and anywhere in between).
When there are eyes on your business, as the founder you are trying to ensure that in every respect your ‘house is in order’ and from a finance, accounting & tax compliance perspective it is crucial to have the right advisors on your side to not only to prepare but guide you through what can be a stressful and drawn out process.
Here are some of the key lessons we have taken from helping our clients through the due diligence process:
1. Invest in the accounting and finance function
Setting up the correct financial foundations early in your business journey is paramount. It will not only give you the assurance that you have a proper accounting system in place but also rigour and accountability around your transactional, banking, payroll, customer/ supplier and reporting elements of the business.
2. Compliance is crucial
Keep in mind that investors won’t simply rely on the information that your team provides them. From an accounting and tax perspective, they will usually perform external and independent checks ensuring compliance in key areas like Income tax, Grants, GST, Employment taxes, Finance and Company structuring. Non-compliance in these areas may jeopardise negotiations so it’s important to get this right.
3. Preparation and timing are key
Don’t wait till the 11th hour to start pulling together your data room. Even if term sheets have been signed, start compiling your data room early on with key documentation around customers and suppliers, human resources, legal & secretarial, IP, finances, accounting & tax compliance. This speaks volumes in terms of professionalism and preparedness to potential investors, not to mention saving you time in the long run.
4. Manage Resources
It can be hard to allocate the time and resources needed for due diligence (let's admit it’s not the most riveting exercise) It is important to keep your team engaged and involved so the pressure doesn’t fall on any one person. Keeping your internal team informed during the process will allow for delegation and efficiency in responses which will also prevent the process needlessly dragging on.
5. Collaborate for the greater good
Bring together your A-Team! This can consist of the Management team, Internal Operations and Finance teams, M&A specialists, Accountants and Lawyers. Set the tone early on in the piece to align each party in terms of their level of involvement, communication, time frame for due diligence and focus areas so there is minimal friction.
Due diligence can be an exhausting and time-consuming process, which is why founders must be well prepared and able to dedicate adequate time and resources to ensure that the process is a smooth one, as a failed due diligence process can devalue a business.
Having the right professionals in your corner can make a world of difference and provide the guidance you need.
Get in touch with us today to see how our team can assist you.