Verge presentation 2011-03-18
- 1. Financial Due Diligence – The Devil is in the DetailsTen Tips For Readiness
- 2. 1) Create a Data RoomBegin storing everything electronically now in an ongoing and comprehensive wayFor startups with fundraising rounds – try keep the fundraising documents and build upon them
- 3. 2) Button-up the important stuffIs it IP?Ask your IP attorneys for a summary of all patents and the upcoming activitiesIs it B2B?Make sure all major customers have current signed contractsIs it consumer/web-basedHave key metrics for the business
- 4. 3) Know your unit costsWhat are your gross and net margins?What costs are variable?What is the proper time horizon to look at customer profitability?
- 5. 4) Know who has a “Change of control” provisionKnow who has them and whether you have good relationship with that vendor/customer. You may need to get them to waive thisCheck your leases and joint ventures as well as customer and vendor contracts
- 6. 5) Prioritize complianceAre all income taxes and annual reports filed? Are you treating sales and other taxes properly in all states?Are all employee files in good working order? Have raises and comp plans been signed off on properly?Is your cap table current? Do you have board minutes?
- 7. 6) Document how you recognize revenueKnow the regulations that support your treatmentPut together a 1 page document summarizing how you recognize revenue, including any exceptions and why those exceptions are permissible
- 8. 7) Have GAAP financials or know what is non-GAAP You may have to represent that the financials are prepared on a GAAP basisIf there are exceptions, know and justify why you are departing from GAAPKnow the implications of changing to GAAP compliant financials
- 9. 8) Present a forecast you expect to delivery onThis is not a fundraise so be prepared to put forth a plan that the team will deliver onThe deal process may take longer than you think so measuring forecast vs. actual may become a factorExceeding forecasts is one of the best ways to give the purchaser comfort
- 10. 9) Know the holes in your business Be prepared to address:Single customer riskInconsistent financial resultsProfitability/margin compressionNo surprises
- 11. 10) Keep running your businessDeals sometimes take longer or do not close for reasons completely out of your controlKeep running and managing the business through the entire close process
- 12. Thank you.