Reader Mail - Due Diligence Help
I received an email today from a reader facing a nice problem to have. It's a common one for entrepreneurs, because most of us aren't accountants, and many of us don't have any financial training or experience. I've left out any of the identifying details out of respect for his privacy:
Scott,
I want to say thank you very much for your blog and ask for your help or guidance. I own a business...and from reading your blogs and doing my homework I was able to find an investment company that is interested in funding us to open more locations (it took several meetings). They sent us syndication papers last month.
We are in the due diligence process and do not have a clue about all of the information (47 documents) that they need back in an expedient manner. I know my business - quality product and quality service. I do not understand these docs and all of the financial info they are asking for. Can you please guide me in the right direction.
Thank you very much,
Joe the Business Owner
Congratulations on finding an eager investor in the current economic climate. I have to think that means that you've got a great concept and a solid track record with your flagship location.
So. due diligence. here's what I've got that will help you get quickly educated about the process and some of the key financial docs:
- Due Diligence Is No Mystery
- Presenting Small Business Financial Statements to a Lender (applies to investors as well)
- Interpreting Financial Statements - The Balance Sheet
- Interpreting Financial Statements - The Income Statement
- Interpreting Financial Statements - The Cash Flow Statement
- Business Plan Outline - Step by Step
I started to pick out a few particular sections of the business plan guide, but really, all of it is probably highly relevant in your situation.
Now, one absolutely critical piece of advice. if you don't already have one, you need to find a good CPA. If your books are in order, they should be able to help you pull together the financial statements for just a few hundred dollars -- maybe a little more depending on the condition of your books and the level of detail required. Regardless, it's money well spent and a drop in the bucket compared to the investment you're asking for.
You may be able to get by with just a bookkeeper as a single location and a sole proprietorship or tightly held LLC. But when you're talking about multiple locations and outside investors, a CPA is an essential addition to your team, and right now is the time to bring them in.
Comments
Hi Joe, congrats on getting your investment now don’t take any chances on DD make sure you get yourself a good accountant to do it for you.
Hi Joe,
In my work with my early stage clients, I begin compiling the due diligence information (using a proprietary system that works for investment, M&A, and strategic alliances) and keep it up to date to avoid the crunch at the last minute. I once had to compile a full DD set for one of my clients from scratch on an impossible deadline, so now I build the DD as we build the business. So, once this round is completed, use your system and assign someone to keep it up to date for the next round and the exit.
Best of luck.
While there is absolutely nothing wrong with recommending a good CPA, there are certainly other equally qualified choices, such as a good accountant, (one who may have chosen not to sit for a state’s CPA licensing exam) and EA (Enrolled Agent) as many of these are also good accountants. Perhaps you should try to research a little deeper into other alternatives when it comes to accounting services/issues than simply starting and stopping at CPAs.