One of the big question marks that come up in the due diligence of any investor is how good the financial reporting for the prospective company is.  Do a good job on your financial reporting and you can create a very positive impression that spills over into their impressions in other areas of the company.

So, what are some things that you can do to create a better image on your reporting?

1.  Having a good set of financial statements.  Have the complete set, balance sheet, income statement and cash flow.  Many will leave off the cash flow.  Some may have it, but you can tell just by looking at the statements that they may just not be tight numbers.

2.  Having solid numbers.  Perhaps, one of the greatest fears of an investor is having to go in and clean up some numbers.  It just becomes a distraction in what otherwise might look like a very worthwhile investment.  It wastes a lot of their time in the due diligence when they have to go in and restate the numbers.  You’d rather have them focused on other, more important things.

3.  Being current with the numbers.  A red flag gets thrown up if the numbers are badly out of date.  If it’s early March and you still don’t have the year-end numbers together, that is a real question mark.

4.  Consistency between numbers.  You might have different sets of annual numbers that are being presented.  You want to make sure that the numbers tie out from year to year.  Surprisingly, this is not always the case.

5.  No restatements.  If you’ve been able to avoid having to have numbers be restated, that’s a real positive too.

6.  Financials which are in sync with the business plan.  You want to make sure that the numbers presented in the financials tie out with the actual numbers shown in the business plan.  That’s another red flag when numbers don’t tie out.  They may feel when there’s smoke, there’s fire.  And if a couple numbers don’t tie out, then they start worrying that there’s other numbers that don’t tie out either that they just have not uncovered quite yet.

So give your financial reporting the test.  If you can meet all of these, congratulations, you help show that you’re on your way to creating a solid impression with a potential investor.

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
Bringing new insights on results and maximizing company value