Preparing for a due diligence or financing round: working capital and financial hygiene

Why financial hygiene matters before you fundraise

A term sheet is not a deal. Between the handshake and the money landing in your account sits a diligence process where the investor's or lender's advisers try to verify everything you told them — and price in whatever they cannot verify. Three consequences follow from that, every time:

• Unreconciled numbers cost you leverage. If your management accounts don't tie to your filed financials, or two data sets you provide disagree, the investor stops trusting the rest of the data room — and starts asking for more of everything.
• Every open question becomes a delay, a term, or both. A clean answer ready on day one keeps the round on schedule; the same question discovered by their lawyers in week four becomes a condition precedent, a holdback, or a renegotiated valuation.
• Rounds have momentum, and momentum is fragile. Investor enthusiasm and internal investment-committee approval both have a shelf life. Weeks spent reconstructing records instead of answering questions are weeks the deal can quietly go cold.

This is distinct from getting funding options right in the first place, and different again from the financial house-keeping that matters when you eventually sell the business. A financing round is judged less on exit-style valuation bridges and more on whether the business can put new capital to work and meet its obligations — which is why runway, working capital and use-of-funds credibility carry more weight here than in a sale process.

Clean, reconciled financial statements

This is the foundation everything else sits on, and it is the first thing any competent investor or lender checks.

• Bank reconciliations current and complete — every account, every month, with no unexplained differences carried forward.
• No stale suspense or clearing accounts. Balances parked in a suspense account “to sort out later” read as a business that doesn't know its own numbers.
• Management accounts that tie to your filed financial statements — the same revenue recognition policy, the same treatment of accruals, applied consistently month to month.
• A GL close process that runs on a predictable schedule, so you can produce an up-to-date trial balance within days of a request, not weeks.

If your accounts have never been audited or professionally compiled, a voluntary review or audit ahead of a raise — even where you qualify for the small-company audit exemption — often pays for itself in a smoother process and fewer adjustments demanded later.

Related-party transactions, disclosed and documented

Related-party balances are one of the first things an investor's finance team pulls apart, because they are where personal and business finances most often blur in an owner-run SME.

• Director and shareholder loans or current accounts — every balance identified, dated, and supported by a resolution or written agreement, not just a running number in the ledger. Our guide to director loans and current accounts covers the tax and compliance mechanics in full.
• Intercompany balances with any group entities, holding company or related businesses — reconciled on both sides and priced on arm's-length terms.
• Personal expenses run through the company — identified and separated out, not left mixed into operating costs where they distort the picture an investor is underwriting.
• Related-party rent, service fees or supply arrangements — documented with contracts and market-rate justification.

None of this needs to be a problem. Related-party dealings are normal in founder- and family-run businesses. What investors react badly to is not the existence of these balances, but discovering them undisclosed — it reads as a governance gap, not just an accounting one.

Working capital and cash runway clarity

This is usually where a financing round's diligence diverges most from a sale process: investors and lenders are underwriting your ability to operate and grow with their money, not just pricing today's balance sheet.

• Accounts receivable and payable aging that is accurate and current, with a credible explanation for anything overdue or written off.
• Inventory records (where relevant) that match physical counts, with a clear basis for valuation and any provisions.
• A cash flow forecast investors will stress-test — built on stated, defensible assumptions about collection periods, payment terms and growth, not a single optimistic scenario.
• A clear runway calculation — current cash, monthly burn, and months of runway both with and without the new financing, so the investor can see exactly what problem their money solves.
• A specific, credible use-of-funds narrative tied to the forecast, rather than a generic list of growth initiatives.

Contracts and key documents in order

The data-room basics — unglamorous, but the fastest way to lose credibility if they are missing when asked for.

• Signed, current contracts with material customers and suppliers, including any that a new investor or lender might view as concentration risk.
• Employment agreements and Key Employment Terms for the team, with clarity on any equity or bonus commitments made informally.
• IP assignments confirming that trademarks, code, domains and other IP sit with the company, not with a founder personally.
• Leases, equipment finance and any existing borrowing agreements, including covenants a new lender or investor will need to know about.

Cap table and corporate records hygiene

A messy cap table is one of the most common and most avoidable reasons a financing round loses momentum.

• The share register matches ACRA's records — every allotment, transfer and conversion properly filed, stamped and reflected in the Annual Return.
• Employee share options tracked accurately — grant dates, vesting schedules and exercised amounts reconciled to what the cap table shows; see our guide to employee stock options and vesting for the underlying compliance points.
• No unresolved corporate actions — a rights issue never formally closed out, a resolution passed but never filed, a director appointment not updated with ACRA.
• A fully diluted cap table that clearly shows the effect of the new round, including any option pool top-up, so there is no dispute about post-money ownership.

Tax compliance status

Tax exposure is a common late-stage surprise, and one that is entirely within your control to clear up in advance.

• Corporate income tax filings (ECI, Form C-S / Form C) current, with no unresolved IRAS queries or overdue assessments.
• GST returns reconciled to the accounts, where the company is registered — see our guide on GST registration thresholds if you're unsure whether this applies to you.
• CPF contributions correct and on time, and payroll filings complete — a frequent gap when a company has scaled headcount quickly.
• Withholding tax on any payments to overseas vendors, related parties or lenders identified and accounted for; our withholding tax guide covers where this most often gets missed.

Common red flags that stall or kill a raise

• Commingled personal and business expenses. The single most common finding in early-stage diligence, and the one that most undermines confidence in the rest of the numbers.
• Undocumented related-party dealings. Loans, rent or service arrangements with no paper trail read as a governance problem even when the underlying economics are fine.
• Inconsistent numbers across audiences. Different figures shown to a bank, to investors and in the statutory accounts is the fastest way to lose an investor's trust entirely — and, in the case of a bank facility, can raise questions about the accuracy of information provided to the lender.
• A cap table that doesn't reconcile. Verbal promises of equity, unrecorded option grants, or a share register that doesn't match ACRA all take weeks to untangle once lawyers start asking.
• A forecast with no defensible assumptions. Revenue projections that aren't tied to a pipeline, conversion rate or unit economics invite an investor to build their own — usually a more conservative one.
• Silence on known issues. An issue you flag and explain upfront is a footnote; the same issue found unprompted by the investor's advisers raises the question of what else wasn't mentioned.

A practical pre-diligence checklist and timeline

Working backwards from when you plan to start investor or lender conversations:

• 3–6 months out — reconcile bank accounts and clear suspense balances, document and formalise all related-party loans and arrangements, tidy the share register and confirm it matches ACRA, and separate out any personal expenses running through the company.
• 2–3 months out — build the working capital and runway analysis, prepare a fully diluted cap table reflecting the proposed round, confirm all tax and CPF filings are current, and assemble signed copies of material contracts.
• 4–6 weeks out — prepare the cash flow forecast and use-of-funds narrative, organise the data room around the categories above, and do a dry run: have someone outside the finance function try to answer the likely diligence questions from the documents alone.
• Ongoing — once conversations start, keep management accounts current on a monthly cycle so the numbers you're discussing never go stale mid-process.

None of this needs to happen all at once, and none of it needs to be perfect — investors and lenders diligence real businesses, not flawless ones. The goal is simply that when a question comes, the answer is a document you can pull up, not a reconstruction you have to start from scratch.

At Chua and Lee Associates, we help Singapore business owners get financing-ready — from reconciling accounts and documenting related-party balances to building the working capital analysis and cap table an investor or lender will actually rely on. To learn more, see our Advisory services, Accounting services and Tax services.