"Due diligence should be seen as something that develops trust on both sides."

Alexei Garan
Head of Business Funding at Shaw & Co

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Whether you are seeking growth funding or private equity investment you are going to have go through an intense period of due diligence to close that deal.

In general, due diligence should be seen as something that develops trust on both sides that will help get the deal completed as quickly and smoothly as possible. Here are some of our key things to consider:

1 - Get the Right Advice, Right From the Start

Our core advice is the same. Employ a corporate financial advisor who can support you and ask the right questions. An advisor would also be able to help shape the ‘scope’ of the diligence exercise, helping to reduce cost and time expended, by focusing on the issues that really matter to a funder.

2 - Be Prepared

In our experience, business owners are almost always shocked at the level of detail involved when conducting the due diligence process - no stone is ever left unturned by a lender or private equity investor. Once in due diligence the competitive phase of the transaction is often over, and this is where the business is exposed to an adverse change in trading conditions and often terms. Moving swiftly through due diligence is the best way to mitigate this risk and being prepared well in advance means that you will be able to respond quickly to information requests.

3 - Mitigate in Advance

There will be issues in documentation or other arrangements with your business that you are unaware of. A SME is a complex entity and having all your paperwork buttoned down is a rarity. Preparing thoroughly in advance allows you to identify as many of these issues as possible and often rectify them before you are under the funder's lens.

4 - No Hiding

Whether it is applications for debt or private equity investment, too often SMEs make the huge mistake of trying to hide risks to their business. Not only does it seriously affect the ability to build trust (as we know, all companies face risks), it also gives the impression that they are also unaware of the risks their business is facing, let alone how to mitigate them. In being ‘risk oblivious’, rather than being risk aware like any good company, your credibility is being decimated in front of potential investors. If a lender or equity investor spots a risk you haven’t mentioned then it really is game over – there is no way back.

5 - Crafting a Deal

Issues do commonly arise in due diligence. The key is how all parties deal with them. Focus on the common goals between stakeholders in order to find a way through any impasse. Inevitably, any deal negotiation requires compromise. Understanding the points that really matter and the points on which compromise can be reached takes experience and foresight.

We work with growing UK SMEs and small-cap PLCs that have funding needs in excess of £2m and regularly approaching £100m. Our clients’ needs will typically be for sophisticated finance products such as cash flow based lending or private equity investments. Our value lies in helping clients access funding that relies on confidence in future trading and cash flows. For a confidential, independent, no obligation discussion on the funding options available click the 'Let's chat' button.