The diligence-prep checklist: what investors ask for, and when

Diligence has a bad reputation, mostly because owners meet it unprepared and experience it as an interrogation that lasts three months. Prepared, it is four to six weeks of work and it is the part where you find out whether you actually want these people involved.

This is the full list, in the order it is asked for. Nothing here is requested before both sides want to continue.

Stage 1 — Application (about 15 minutes, no documents)

• Company name, location, industry, years operating
• Revenue and profitability ranges (bands, not exact figures)
• Headcount
• What the capital is for and how much
• Preferred structure, if you have a view
• How you heard about the group

That is all. No financial statements, no personal financial information, no tax returns. If anyone at this stage asks for your personal net worth, that is a signal about them.

One thing worth knowing: at intake, information is received on a non-confidential basis. Do not send trade secrets, drawings or source code with an application, anywhere. A mutual NDA belongs at stage 3 or 4, not stage 1.

Stage 2 — Before the first call (a week or so later)

• A one-page summary of the plan
• A simple use-of-funds table — what the money buys, in what order
• A deck or business plan only if you already have one. Do not write one for us.

Stage 3 — Before the member working session (weeks 2–4)

Now the numbers.

Financial

1. Three years of year-end financial statements. Notice-to-reader is fine at this size; reviewed or audited is a bonus, not a requirement.
2. Current year-to-date statements, no more than 60 days old.
3. Monthly revenue and gross margin for the last 24 months, in a spreadsheet.
4. A simple 12-month cash-flow projection with the capital in it, and one without.
5. Current debt schedule: lender, balance, rate, maturity, security, guarantees.

Commercial

6. Top ten customers by revenue for the last two years (names can be withheld at this stage — "Customer A, 31%" is enough to have the conversation).
7. Revenue by product line, service line or location.
8. Pipeline, backlog or bookings, in whatever form you actually keep it.

People

9. Organization chart with tenure.
10. Headcount by function, and current open positions.

Most companies have seven of those ten already. The three that usually need work are monthly margin history, the projection, and an accurate debt schedule.

Stage 4 — Diligence (weeks 4–10)

This is where members put in real time — twenty-plus hours each is normal for a company they are serious about.

Financial detail

11. Bank statements for a sample period, reconciled to the books.
12. Aged accounts receivable and payable.
13. Inventory listing and valuation method, if applicable.
14. Payroll summary and benefits costs.
15. Corporate tax filings for three years; confirmation that source deductions, HST/GST or sales tax are current. (Arrears here are common, fixable and much better disclosed early.)
16. Capital asset register with acquisition dates.

Legal and contractual

17. Articles, bylaws, minute book, share register, and any existing shareholder agreement.
18. Customer contracts or purchase orders for the top relationships.
19. Supplier agreements where a supplier is critical or sole-source.
20. Premises leases and equipment leases.
21. Insurance policies — general liability, property, key-person, cyber.
22. Any litigation, claim, or threatened claim, past or present.
23. Intellectual property: registrations, ownership of tooling, licences.
24. Regulatory licences, permits and certifications (ISO, IATF, health, liquor, professional).

Operational

25. Quality-system documentation and the last audit report.
26. Safety record and any regulatory orders.
27. Key operating metrics for 24 months — on-time delivery, utilization, scrap, member churn, occupancy, treatment volumes: whatever drives your business.
28. IT and systems overview, including what happens to the business if the server room floods.

References and site visit

29. Three customer references.
30. Two supplier references.
31. Your accountant and your banker.
32. A site visit — usually half a day, always in person, often with a second member.

Stage 5 — Closing (weeks 8–12)

33. Subscription or shareholder agreement
34. The instrument itself: preferred share terms, revenue note, or loan and warrant documents
35. Board or observer terms and reporting commitments
36. Any postponement or intercreditor agreement your senior lender requires
37. Updated corporate records and a closing certificate
38. Confirmation of insurance and, sometimes, key-person coverage

Each side uses its own lawyer. Budget for it — legal on a well-structured minority investment at this size commonly runs a few thousand dollars per side, and more if the corporate records need repair first.

The six things that most often delay a deal

1. Minute books that have not been updated in years. This is the single most common delay and the most avoidable. Ask your lawyer to bring the records current now, before anything else.
2. Statements more than a year old, or a year-end that gets restated mid-diligence.
3. Undisclosed tax or source-deduction arrears found in diligence rather than disclosed in week one.
4. Lease terms nobody read — a change-of-control clause, a personal guarantee, or a term that expires before the investment is repaid.
5. A shareholder agreement with a right of first refusal that the other shareholder has to be asked about, late.
6. Senior lender consent that nobody started until the documents were drafted.

Fix one through three before you raise. Flag four through six in the first week.

What diligence is actually testing

It helps to know what the questions are for. Diligence at this size tests four things, and every document above maps to one of them.

Are the numbers real? Bank statements reconciled to the books, receivables that age normally, and inventory that exists. This is not an accusation; it is the baseline, and it is where an investor's own money makes them thorough in a way a lender's credit policy does not.

Is the revenue durable? Contracts, concentration, pipeline and customer references. A company can be profitable this year and structurally fragile, and the point of calling customers is to hear how they talk about you when you are not in the room.

Does it work without you? The organization chart, the key-person questions and the site visit. The half-day on site is not theatre — it is where an operator finds out who actually solves problems.

What is hiding? Litigation, tax arrears, an unusual lease, an old shareholder agreement, a supplier concentration nobody mentioned. Almost every deal has one of these. Deals die from the discovery, not from the fact.

Who does the work, and what it costs you

On our members' side, the people doing diligence are the members themselves — twenty or more hours each on a company they are serious about — plus their own lawyer at closing. There is no fee charged to you for any of it.

Your costs are real but modest at this size: your accountant's time assembling and explaining the numbers, your lawyer bringing the corporate records current and negotiating the agreement, and your own hours. Owners routinely underestimate the last one. Budget a day a week for four to six weeks during the intensive stage, and tell your team that something is happening before they work it out from the visitors.

One practical suggestion: appoint a single point of contact — often the controller — and route every request through them. Diligence that arrives at four people in parallel generates four inconsistent answers, and inconsistency costs more time than any missing document.

What to do this month if you are twelve months out

• Get the minute book current.
• Get the statements current and set up a monthly package you actually produce.
• Build the 24-month revenue and margin spreadsheet. You will use it forever.
• Write the one-page debt schedule.
• Read your lease and your loan covenants.
• Make a list of what you would rather an investor did not find, and plan to tell them in week one.

That last one is not a formality. Every experienced investor has been surprised in diligence, and the surprise always costs more than the fact would have.

When you are ready: see how the process works or start an application.

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This guide is general information from operators, not legal, tax, accounting or investment advice, and it is not an offer of any security. Programs, thresholds and tax rules change — the date above is when we last checked. Talk to your own accountant and lawyer before acting on any of it.