Preparing for Financial Due Diligence

In my last column (BusinessWeek.com, 10/24/07), I described three common reasons financing deals fall through based on the 200-plus deals with which I've been involved. Now let's say you've aced—or at least passed—your financier's due diligence of your management team, technical capabilities, and sales and marketing strategy. The last hurdle between you and a term sheet is financial due diligence. In this column, I offer advice on preparing for and making it through the process.

There are three areas of financial due diligence. The first is an explanation of how you plan to use the funds. The second is an explanation of your business model/budgets. The third is a legal review. It's essential to be able to provide a realistic assessment of your business, clearly articulate the reason for the financing, and explain for what exactly the dollars will be used. Use of proceeds is where many deals fall apart. Here is a checklist I put together that will help you. Good luck.