The Books Must Be Ready Months Before the Round

A funding round is an examination of your accounting. Most founders start preparing for it when the round begins, and by then they are late. The files opened during due diligence are well known, and they need to be ready months before the round, because there is no such thing as fixing them afterwards. The history in the books cannot be rewritten.

Let me set out the three most frequent and most expensive mistakes. The first is the founder's current account. In the early months the boundary between the company's money and the founder's money blurs, and that blur accumulates in the books as a receivable from the founder. An investor sees it immediately, and the item is usually deducted from the valuation.

The second is a complex structure built too early. A foreign holding company, multiple entities or early share splits, when set up before there is any revenue, create both cost and a structure that is hard to simplify later. Building the structure before the need arises is more expensive than building it when it does.

The third is not being able to explain your accounting choices to an investor. When revenue is recognised, how costs are classified, how goods and services are separated: these are technical choices, but in due diligence each arrives as a question, and every choice without an answer comes back as a discount. The articles below open up these three themes and the preparation calendar that precedes a round.