What to fix before you raise, and how long it takes

Having been on the receiving end of diligence, the thing that surprised me most was how little of it was about the business. The commercial case was made in three meetings. The following eleven weeks were spent proving that the numbers behind that case could be trusted, and every day of delay was a day of leverage moving quietly to the other side of the table.

Investors and lenders are not hostile in this phase. They are pattern matching. Clean records signal a business that is run properly. Slow, inconsistent answers signal risk, and risk gets priced.

Start twelve months out, not three

The single biggest determinant of how diligence goes is whether your last three years of accounts were prepared on a consistent basis. That cannot be retrofitted in a hurry. If revenue recognition changed, if the chart of accounts was restructured, if a subsidiary was consolidated differently in one year, you will spend the process explaining bridges instead of discussing the business. Fixing that properly, and restating prior periods, takes months.

The list, in the order we work it

• A consistent basis of preparation across three years, with any change of policy documented and prior years restated.
• A close that finishes in a known number of days, because diligence will ask for a month-end mid-process and you will need it on time.
• Revenue by customer and by product for thirty-six months, reconciled to the ledger, with cohorts and churn for subscription revenue.
• Gross margin split by service line or product, with a written policy for what sits above the line.
• A quality of earnings view of your own: the one-off items, the owner costs, the related party transactions, the accounting judgements. Find them before the buy-side accountants do.
• Contracts and commitments in one place: customer agreements, leases, loans, supplier terms, and anything with a change of control clause.
• A clean cap table, option register, and board minute file. This is where deals stall most often and it is entirely avoidable.
• Payroll, tax, and statutory filings up to date across every jurisdiction you operate in.

Run a mock diligence

Six to eight weeks before you go out, have someone independent run the process against you. Give them the data room and a fortnight, and ask them to produce the list of questions a buyer would raise. It is an uncomfortable exercise and it is worth every hour. Every issue found internally is an issue you fix on your own timetable. Every issue found externally becomes a negotiating point, a warranty, or a chunk of consideration moved into an earn-out.

What good looks like on the day

The standard is not perfection. It is speed and consistency. A request arrives and the answer comes back the same week, from the system rather than from a rebuilt spreadsheet, and it agrees with what you said in the last pack. Do that ten times in a row and the process moves quickly. Miss it twice and the scope of enquiry widens, which is how an eight-week process becomes a five-month one.

The businesses that come through this well are almost never the ones with the best story. They are the ones whose finance function was already producing reliable numbers on a rhythm, because nothing in the list above is diligence-specific. It is a description of a finance function that works, put under time pressure by people with an incentive to find the gaps.