You feel ready, but are you diligence ready?
When you’re the founder of a startup, feeling ready is one thing, but being diligence ready is another. You may have QuickBooks Online (QBO) under control, and your financials might look clean and organized. But when lenders or investors come knocking, they’re going to dig deeper—much deeper. Are you ready for that?
In today’s competitive startup landscape, being diligence ready means more than just accurate bookkeeping. It’s about demonstrating a compelling narrative, backed by hard data, with financials that inspire confidence and trust. It’s about readiness, oversight, runway management, and knowing your numbers like the back of your hand.
Diligence – Do you have a compelling story?
Investors and lenders aren’t just looking at your numbers; they’re looking at the story your numbers tell. Can you articulate a vision backed up by data? Do you have metrics that support your growth narrative and validate your market assumptions?
Diligence readiness is about more than just having a pitch deck. It’s about presenting financials that align with your strategic vision. This includes:
- Historical financial performance and how it supports your growth projections.
- Detailed customer acquisition costs and lifetime value metrics.
- Cohort analyses that demonstrate user retention and scalability.
- Proof of a repeatable and scalable business model.
Your story must be consistent, credible, and compelling. If your financials can’t back up your vision, investors will notice. A well-prepared and well-rehearsed story can’t be thrown together in a few days. It requires months of thought and analysis. It’s not a full-time problem, but if you’re not ready, you will miss things. I’ve seen it happen.
Readiness – Can you deliver financials on demand?
If an investor asked you today for a full set of financials, how quickly could you deliver? The reality is, speed matters. If it takes you a week—or worse, two weeks—to produce accurate financial statements, it raises a red flag. Investors want to know that you have a pulse on your financial health and that you’re not scrambling to piece together data.
Consider the message it sends if you can’t provide accurate financials immediately:
- Are you truly in control of your business?
- Do you understand your cash flow and burn rate?
- What other projects have been put off until later?
- How reliable are your projections?
Being able to deliver accurate, up-to-date financials on demand shows investors that you are organized, disciplined, and ready for growth. It builds confidence and positions you as a founder who is on top of every aspect of your startup. A set of accurate financials that takes two weeks to prepare is almost as bad as same-day financials that are completely wrong. It sends a message that you’re asleep at the wheel. Being a founder isn’t just about being a great coder, or a great scientist; it’s about being in control of the business.
Oversight – Would you know if spending was off track?
Financial oversight isn’t just about tracking expenses—it’s about having systems in place to catch anomalies before they become crises. If your spending was off track, how long would it take you to realize? A month? A quarter?
Effective oversight involves:
- Real-time tracking of key financial metrics.
- Budget variance analysis to spot overspending or underspending.
- Proactive cash flow management to avoid liquidity issues.
- Clear financial controls and processes that prevent errors and fraud.
The faster you can detect and react to financial deviations, the better you can steer your startup through challenges and opportunities. This level of financial discipline reassures investors that their capital will be well managed. If you have a passing conversation about bringing on a new software engineer, do you intuitively know whether you have the cash to make that happen? Do you know what that would do to your runway? This isn’t just a function of keeping your transactions up to date in QBO, it requires insight and expertise.
Runway – How accurate is your cash runway model?
Cash runway isn’t just about knowing when you’ll run out of money. It’s about understanding how past financial performance and future assumptions influence your survival. How confident are you in your cash runway projections?
To be truly diligence ready, you need:
- Historical analysis of burn rate trends and how they correlate with revenue growth.
- Scenario planning that reflects best-case, worst-case, and most-likely outcomes.
- Rolling forecasts that adapt to new data and market changes.
- Cash management strategies that extend runway without stalling growth.
Investors want to see that you not only have a solid runway projection but also a dynamic model that evolves with your startup’s needs. This demonstrates financial foresight and strategic agility.
The right number – Do you know your growth capital requirement?
Imagine an investor asks: “If I were to extend your runway by six months, how much would you need?” Would you have an answer?
It’s not just about knowing your burn rate; it’s about:
- Understanding the relationship between capital needs and growth milestones.
- Knowing the cost of customer acquisition and how it scales.
- Aligning funding requirements with strategic goals and timelines.
- Being able to justify the amount to ask for with data-driven assumptions.
Investors appreciate founders who are precise, confident, and data-driven when discussing capital requirements. It shows that you’re not just asking for money—you’re asking for strategic growth capital, backed by solid numbers and a clear vision. In a worst-case scenario, you’ve told an investor you need $2m for 6 months of runway, but you’re back in 4 months asking for more. If you’ve been talking along the way, and sharing the journey with them, that’s one thing. If it’s a “we’re out of cash already” surprise conversation, I’ll guess your chances of getting the next 6 months of cash aren’t good.
Are you ready to be diligence ready?
Feeling ready is one thing, but being diligence ready is what sets strong startups apart. It’s about having a compelling story backed by data, being able to provide financials on demand, maintaining rigorous oversight, confidently projecting cash runway, and knowing your growth capital requirement down to the dollar.
At Startup Partners, we specialize in getting startups diligence ready. From Fractional CFO services to Startup Accounting & Reporting, we empower founders to present a compelling financial story with confidence and precision.
Ready to take the next step? Let us help you get diligence ready today.
