What investors look for includes clean and accurate financial records, professional financial management, scalable systems and processes, and transparent reporting. Red flags include incomplete or inaccurate records, poor financial controls, inconsistent reporting, and lack of financial planning.
Missed opportunities include lost funding rounds, lower valuations, damaged credibility, and wasted time and effort. Direct costs include extended due diligence periods, higher legal and accounting fees, investor confidence issues, and competitive disadvantage.
Income Statement includes revenue recognition, cost of goods sold, operating expenses, and net income or loss. Balance Sheet includes assets and liabilities, equity structure, working capital, and debt obligations. Cash Flow Statement includes operating cash flow, investing activities, financing activities, and cash position.
Revenue records include sales contracts, invoices and receipts, payment confirmations, and customer agreements. Expense records include receipts and invoices, bank statements, credit card statements, and vendor agreements. Tax records include tax returns, payroll tax returns, sales tax returns, and audit reports.
Segregation of duties means different people for different functions, approval processes, review procedures, and independent oversight. Documentation includes written procedures, approval workflows, review processes, and audit trails. Monitoring includes regular reconciliations, exception reporting, performance metrics, and continuous improvement.
Software requirements include professional accounting software, cloud-based solutions, integration capabilities, and scalable systems. Data management includes complete transaction records, supporting documentation, regular backups, and security measures.
Growth metrics include monthly recurring revenue (MRR), annual recurring revenue (ARR), revenue growth rate, and customer acquisition cost (CAC). Quality metrics include customer lifetime value (CLV), churn rate, gross margin, and net revenue retention.
Gross margin is revenue minus COGS, industry benchmarks, trend analysis, and improvement opportunities. Operating margin is operating income divided by revenue, cost management, efficiency measures, and scalability indicators. Net margin is net income divided by revenue, overall profitability, tax implications, and investor returns.
Operating cash flow includes cash from operations, working capital management, seasonal variations, and growth requirements. Burn rate includes monthly cash consumption, runway calculation, funding requirements, and risk management. Cash conversion includes revenue to cash timing, collection periods, payment terms, and working capital needs.
Historical analysis includes past performance trends, seasonal variations, growth patterns, and market conditions. Market analysis includes total addressable market, market share potential, competitive landscape, and growth drivers. Assumption documentation includes revenue drivers, pricing assumptions, customer acquisition, and market penetration.
Fixed costs include rent and utilities, salaries and benefits, insurance and taxes, and software subscriptions. Variable costs include cost of goods sold, sales and marketing, customer acquisition, and variable overhead. Growth costs include hiring plans, infrastructure needs, market expansion, and technology investments.
Monthly projections include revenue timing, expense timing, working capital changes, and funding needs. Scenario planning includes best case scenario, worst case scenario, most likely scenario, and sensitivity analysis.
Financial statements include audited or reviewed statements, monthly statements, variance analysis, and supporting schedules. Supporting documents include bank statements, invoices and receipts, contracts and agreements, and tax returns. Management reports include board presentations, investor updates, operational metrics, and strategic plans.
Executive summary includes business overview, financial highlights, key metrics, and growth plans. Financial dashboard includes key performance indicators, trend analysis, benchmark comparisons, and risk factors. Investor deck includes business model, financial projections, use of funds, and exit strategy.
Revenue recognition questions include how do you recognize revenue, what are your payment terms, how do you handle refunds, and what is your churn rate. Cost structure questions include what are your fixed costs, how do you manage variable costs, what is your gross margin, and how scalable is your model. Cash management questions include what is your burn rate, how long is your runway, what are your funding needs, and how do you manage working capital.
Systems and processes questions include what accounting software do you use, how do you track expenses, what are your internal controls, and how do you manage inventory. Team and resources questions include who handles your finances, what is your hiring plan, how do you manage growth, and what are your resource needs.
Poor record keeping includes incomplete records, missing documentation, inconsistent reporting, and calculation errors. Control issues include lack of segregation, no approval processes, missing reviews, and weak controls. Planning problems include no financial planning, unrealistic projections, poor assumptions, and lack of monitoring.
System issues include outdated software, manual processes, integration problems, and security concerns. Team issues include lack of expertise, high turnover, poor communication, and inadequate training.
Complex situations include multiple revenue streams, complex business models, high growth rates, and international operations. Preparation needs include due diligence preparation, financial modeling, audit support, and strategic planning.
Experience and expertise include startup experience, due diligence knowledge, industry expertise, and communication skills. Services offered include financial preparation, due diligence support, strategic planning, and ongoing support.
Professional options include QuickBooks Online, Xero, Sage, and NetSuite. Features include real-time reporting, integration capabilities, scalable systems, and professional support.
Excel templates include custom models, scenario planning, sensitivity analysis, and professional presentation. Specialized software includes financial modeling tools, business planning software, investor relations platforms, and analytics dashboards.
Preparing your startup's finances for investor due diligence isn't just about having clean records. It's about demonstrating that you're a professional, scalable business that investors can trust with their money. The time and effort you invest in financial preparation will pay dividends in higher valuations, faster funding rounds, and better investor relationships.
Start preparing early, get professional help when you need it, and always err on the side of transparency and accuracy. Your investors will thank you, and your business will be stronger for it.
Ready to improve your financial management? Check out our comprehensive guide on In-House vs. Outsourced Accounting: A Cost-Benefit Analysis to understand your options.
For insights on working with external teams, read our article on Best Practices for Working with an Offshore Accounting Team.
And if you're ready to take the next step, our guide on How to Choose an Accounting Outsourcing Provider: 10 Questions to Ask will help you select the right partner.
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