Preparing for due diligence can be tricky, and most business owners are caught unaware when it actually happens – primarily due to lack of planning and expertise in the area. Even industry veterans and hard-nosed businessmen can find themselves in unknown waters when it comes to answering a due diligence consultant’s laser-sharp queries on their company. However, it needn’t be so.
Getting Ready For Due Diligence – Looking Inwards
It’s always a good idea to start with your internal policies. This includes re-looking at systems – in the organizational infrastructure – that are already in place or lacking. Also, scrutinize the employment contracts of all your personnel. This presents a great opportunity for you to streamline old processes and introduce new policies.
To get a clear picture of where you stand on a month-on-month basis, prepare an MIS (Management Information System) report going back, at least, a few months.
This might seem like a costly exercise in terms of time and money, but it could actually prove to be a game-changer as far as smooth sailing through the due diligence process is concerned. It may even throw up some useful insights for the future.
Getting Ready For Due Diligence – Looking Outwards
On the external front, you should start by making a checklist of all registrations that may be required for your business. It is also crucial to be abreast of statutory compliance. If all this seems a bit complex, it might be prudent to reach out to a trusted financial advisor.
This is the point where you seriously need to consider enlisting the checklist with the help of an accountancy service provider or a one-stop portal as your virtual assistant. While it may sound like a single person helping you out, it’s usually a team of experts – financial wizards and strategists with deep expertise in the field. They’ll even help you go over your vendor contracts, licenses and other legal documents with a fine-tooth comb.
Coming to Key Performance Indicators (KPIs), the due diligence consultant is bound to be interested in how your company is making money. Do a deep-dive into the RoI (Return on Investment) on marketing spends, and segregate & analyze your customers – B2B vs B2C and organic versus inorganic. Figure out the marketing channels they’re coming from, the amount of money they are spending with you, and so on. These little details count.
Most importantly, identify and rectify potential issues or deficiencies in time. If you are not able to rectify any of those issues, have a good justification ready, and a clear plan on how you intend to improve the same going ahead.
The key is to never get caught off guard by the surprises the due diligence consultant may throw at you. The only way to ensure this is by doing your homework well in advance or having someone qualified do it for you. A little bit of preparation can truly go a long way in securing that deal!
Lodha & Bhatt is a preferred LetsVenture Service Provider that conducts detailed yet quick due diligence on startups post-commit.