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How to Get Your Business Diligence-Ready for PE Investment According to Experts

Posted by Arya Chatterjee

Expert advisors: William Webster and Ankush Sharma

June 14, 2024

Expert advice from industry veterans, William Webster and Ankush Sharma.

The path to securing a PE investment requires meticulous preparation and unwavering attention to detail. To attract and secure PE investment, businesses must be ready to face the rigorous due diligence process that PE firms conduct.

This article distills the expertise of William Webster, Business Development lead for Private Equity-Backed Companies, and Ankush Sharma, Lead Controller, Private Equity Practice. They share their comprehensive guide to getting your business diligence-ready for PE investment.

     1. Financial Readiness

The cornerstone of attracting PE investment is clear and precise financial documentation. William emphasizes, “At a minimum, you will need a profit and loss statement, balance sheet, and statement of cash flows. All need to be presented on an accrual basis per GAAP. Private Equity will want to see that items on the financial statement are reconciled and no discrepancies exist.”

In addition to these statements, Ankush lists documents that businesses should have ready:

  • Contracts with customers, vendors, consultants, and employees
  • Cap table
  • 409A valuation
  • Audit reports (if available)
  • Last three years of financials
  • Process documents
  • List of potential lawsuits and exposures

PE Firms have analysts who rip into the details, and one discrepancy can be enough to call off the deal,” Ankush warns.

     2. Operational Robustness

Operational processes and systems must be robust and transparent to instill confidence in potential investors. This means that your business operations should be strong and clear, with no hidden or unclear processes. William points out, “Business owners need a system of checks and balances in the accounting process so that investors can get comfortable around the numbers.”

William notes a crucial aspect of this is the separation of duties. Different team members should handle authorizing payments, writing checks, recording items to the general ledger, and reconciling items. He says smart delegation minimizes risk and errors, building investor confidence.

     3. Compliance and Risk Management

Before any transaction, businesses must be proactive about compliance and risk management. Unresolved obligations like sales and state income tax can create clawbacks or earnouts in the purchase price. Compliance is non-negotiable, according to William. Some other items to be aware of are HR items related to employees. “Does every employee have a signed offer letter? Have background checks been performed? Is the business properly registered in every state where it does business?” William questions.

Adhering to these practices can save businesses significant liabilities and ensure a smoother due diligence process.

     4. Performance Metrics and KPIs

Performance metrics and KPIs are industry-specific, but understanding and optimizing them can unlock significant value. “In the SaaS industry, investors will look at average contract value, churn rate, lifetime value of customers, cost to acquire customers (CAC), and CAC payback,” William explains.

“Each industry has specific metrics, and business owners can benefit greatly from an advisor who can help inform them understand and calculate these metrics accurately,” He advises.

     5. Enhancing Value Proposition

A sound financial reporting process and timely month-end accounting close are the keys to economic success. “If a PE investor can get comfortable with this process, the diligence will be much easier for all parties,” William notes.

Additional tips to enhance your value proposition include engaging a firm to clean up your accounting records and ensuring GAAP compliance. “Business owners must be audit-ready before beginning a process,” William advises.

Bottom Line

Preparation is the key to unlocking the potential of securing PE investment. By diligently following the expert advice of William Webster and Ankush Sharma, you can position your business as an attractive investment opportunity for private equity firms.

Want to be diligence-ready for PE investment? Don’t miss this opportunity to learn from the best in the business at our Escalon Webinar!

Register now for our webinar on June 26, 2024, at 2:00 PM ET / 11:00 AM PT.

Register Here


About Ankush Sharma

Ankush Sharma is a seasoned financial professional with over 18 years of experience at Escalon Services. He has a passion for innovation and a proven track record of helping businesses grow. Throughout his career, Ankush has honed his skills in process improvement, change management, and implementing cutting-edge financial systems. His passion for innovation and measurable results makes him an invaluable asset to Escalon Services and its clients. To know more about Ankush’s background, visit our website.

About William Webster

William Webster started his career working with a family office in Kansas City and has spanned stints at companies like Ernst & Young, PitchBook Data, and Tegus. He’s passionate about ensuring that small business owners can achieve the dreams they’ve set for themselves as they grow their companies. Further, his experience ensures that he has the interests of everyone, from investors to business owners, when looking to broker deals. To know more about William’s background, visit our website.

Disclaimer: This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal, or accounting advice in this article. If you would like to engage with Escalon, please get in touch with us here.


Arya Chatterjee
Arya Chatterjee

Arya Chatterjee is a freelance writer and consultant from Mumbai. With a background in journalism and over five years of creative writing experience working with legacy media like Architectural Digest and Femina India and brands like The Label Life, and Macy's, she crafts unique and compelling stories that engage the readers. She enjoys writing about health, beauty, fashion, and lifestyle and exploring the symbiotic relationship between thriving businesses and happy employees through her writing. She is always looking to explore new avenues to expand her creative energy.

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