Preparing for a Capital Raise or Sale
A practical readiness checklist: align the owners, organize financial evidence and prepare for diligence while running the business.
Overview
A financing or sale process asks management to explain the business while continuing to run it. Begin with the desired outcome, then organize the evidence a buyer, investor or lender needs.
Separate capital going into the company from liquidity paid to shareholders. Agree the amounts, the owner’s role afterward, and which governance rights and ownership changes are acceptable.
Three takeaways
- Connect a capital request to specific uses and measurable operating milestones. For a sale, define the assets or entities included and the transition.
- Three years of annual results, recent monthly statements and year-to-date performance are a starting point, not a universal requirement. The appropriate period depends on the business and transaction.
- Make forecasts testable through customers, units, pricing, locations or contracts. Distinguish contracted revenue from assumptions, and include slower growth, spending flexibility and additional funding needs.
Considerations
- Reconcile results to accounting records. Document each earnings adjustment with its amount, timing and evidence; distinguish genuinely nonrecurring costs from expenses a new owner would still incur. A Quality of Earnings (QoE) review should have a transaction-appropriate scope.
- Explain earnings versus cash: collections, inventory, supplier payments, capital spending and debt service. Prepare a monthly cash forecast and identify seasonality.
- Review the working capital a buyer expects to receive and its negotiated definitions. Adjustments may change proceeds at closing or afterward; keep debt and debt-like obligations separate.
Outcomes depend on the business, market conditions and negotiated documents. Consult your legal and tax advisers about your circumstances.
Organize diligence before it becomes urgent
- Confirm the capitalization table, incentives, shareholder rights, debt, liens, guarantees and required consents. Ask counsel to review ownership and entity records.
- Prepare concentration, retention, churn where relevant, pricing history, backlog and margins. Explain customer and supplier dependencies beyond the founder.
- Organize material contracts, leases, intellectual property, insurance, licenses, employment agreements and disputes. Flag change-of-control provisions.
- Assign an internal owner to each workstream without compromising daily operations. Consider retention and succession.
Share information in stages
Start with a concise overview. Use an appropriate confidentiality agreement and controlled access before detailed records. Restrict especially sensitive customer, employee or competitively sensitive information until the process and recipient justify access.
Before outreach
- Do owners agree on liquidity, control, timing and the post-transaction role?
- Can management explain historical results and defend forecast assumptions?
- Could ownership, contract, tax or reporting issues change terms?
- Who owns information requests, and how will the business keep operating?
For information only. This material is not an offer or solicitation, or legal, tax or investment advice. Structures and terms depend on the business, counterparties and definitive documentation.