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Raising finance for your business: Part 3

Raising finance for your business means following a four-stage process. In the final article in this series, we explain how to manage the due diligence process and complete the transaction.

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Raising finance for your business means following a five-stage process. In the final article in this series, we explain how to manage the due diligence process and complete the transaction. In the first two articles in this series, we considered the two stages in the raising finance process: preparing a business plan and approaching investors and banks. You now have ‘in principle' offers from both investors of your choice and your bank. What can go wrong? The answer is, far more than you can imagine! Anyone who thinks it is all over after stage three is in for a surprise; managing due diligence and the legal completion process are key, particularly as they are the stages with which management will be least familiar and seem to add the least value. They are critical, however, as a number of things can go wrong. The first thing to do is read the ‘in principles' in detail: would you accept these terms? If not, go back and negotiate now. Do not let a deal go to legals with terms that you will not accept, in the hope of changing the terms later. Due diligence Managing the due diligence process is key to successfully raising finance. You must understand what due diligence is (and is not), and what investors and banks are seeking to get out of the process. Investors will be concerned if they see gaps in the business plan, in the financials, the market background, the management team or forecasts. Banks will have concerns over the security available, any contracts and cash flow. Everything you say and have said that is critical to the success of the business must be capable of verification during the due diligence process. Do not make assertions you cannot back up with facts. Equally, expect any gaps in your plan to be scrutinised. If you have any doubts, subject the business to a pre-due diligence review. At the very least, get the ‘terms of reference' issued to the investor's and bank's investigating accountants, and go through them with your adviser to identify any weak areas before allowing access to your books. Legal agreements and completion If you get to this stage, it is easy to believe the deal is done – far from it. Do not underestimate what can go wrong at the legal stage. Although, in theory, everything is agreed, many deals still fall at this hurdle. By now, you will have appointed solicitors who have experience of institutional investor and bank loan agreements. It is important to let them, and your corporate finance adviser, deal with all the legal documentation on your behalf. This does not mean you will not be involved – quite the opposite – but just that ‘lawyerspeak' is its own language, which you do not need to learn. Finally, you can breathe a sigh of relief as the cheques hit the bank account and you can get back to running the business; until, that is, you decide to float the company… but that is for another day! Find out how the Forum can help you find appropriate funding for your business through a range of sources. Call us on 0845 130 1722.