What Investors and Development Banks Actually Check Before They Fund You

The pitch gets you a meeting. The operating detail decides whether the meeting becomes a funding process.

Once a funder becomes interested, the questions change. You are no longer being asked whether the idea is exciting. You are being asked whether the business can produce the truth behind its story, protect the money it receives, deliver the plan, and keep functioning when a key person is unavailable.

That is the practical meaning of operational due diligence. It is not a hunt for perfection. It is a test of whether the business is knowable, controlled and capable of improving. The IFC SME Governance Guidebook treats internal controls, reporting, delegation and succession as management disciplines that become more important as an SME grows. A founder approaching a lender, investor or development finance institution should expect those disciplines to be examined, even when nobody uses the phrase “operational due diligence”.

What the funder is trying to find out

Different funders use different checklists. A commercial lender may focus on repayment and security. An equity investor may focus on growth, governance and exit. A development bank may add technical soundness, organisational capacity, social and environmental risk, procurement and use-of-funds controls. AFD’s published project cycle, for example, describes assessment of a project’s technical, economic, organisational and financial soundness before financing is structured.

Underneath the different templates are four recurring questions:

• Are the numbers real? Can revenue, margin, cash, debt, tax and working capital be traced to records?
• Can the business execute? Do people, suppliers, processes, systems and contracts support the plan?
• Can the funder see and control risk? Are material risks named, monitored and assigned to someone?
• Will the business survive dependence on one person? Can decisions, relationships and operating knowledge be shared?

1. They test whether your numbers reconcile

Funders do not expect every small business to have a perfect finance department. They do expect the important numbers to agree with one another, or for you to explain why they do not.

Take the revenue figure in the pitch deck. Can it be traced to the accounting ledger? Does the ledger tie to bank receipts, mobile-money statements, invoices, point-of-sale reports or signed delivery notes? Do the receivables in the balance sheet match the customer ageing schedule? Does the cash-flow forecast reflect the actual collection pattern rather than the date an invoice was issued?

Run this test before a funder does:

1. Choose the five largest numbers in the funding case.
2. Write down the source record for each number and the person who owns it.
3. Reconcile the number to an independent record where one exists.
4. Explain every difference in plain language, with a date and an action.
5. Freeze the version used in the funding pack so later changes are visible.

2. They ask whether your systems can produce evidence

A funder may request a customer list, sales by month, supplier balances, staff costs, project status, tax filings, licences or board approvals. The question is not whether you can assemble one impressive folder. It is whether the business can produce reliable evidence repeatedly.

Look at the operating chain behind each important claim:

• Sales should leave a trail from order to invoice, delivery, receipt and outstanding balance.
• Procurement should show who approved the purchase, what was received, what was paid and where the contract sits.
• Payroll should connect contracts, attendance or deliverables, payment records and statutory obligations.
• Projects should show scope, milestones, acceptance, change requests, invoices, costs and customer feedback.
• Stock should reconcile opening quantity, purchases, issues, sales, adjustments and closing count.

Weak systems create a particular danger: the founder may know the answer, but the company cannot prove it. That distinction matters to an outside decision-maker. A verbal explanation can clarify a record; it cannot replace one.

3. They look for key-person risk

Many growing businesses are powered by one founder, one finance manager, one technical specialist or one person who knows how every important customer relationship works. That concentration is understandable. It is also a funding risk.

The IFC guidebook identifies high key-person risk and weak checks and balances as concerns for external investors. The remedy is not to pretend the founder is replaceable today. It is to show that the business is deliberately reducing single-person dependence.

Make a key-person map with four columns:

• Decision: what must be decided?
• Knowledge: what does the current owner know that is not written down?
• Backup: who can act if the owner is unavailable?
• Evidence: where is the relevant contract, file, password process, approval or relationship record?

Then test it. Ask the backup person to complete one real process without coaching. The gaps you find are more valuable than a polished organisation chart.

4. They inspect governance and controls

Governance is not a boardroom decoration. It is how the business decides, records, reviews and corrects. At minimum, a funder wants to see clear authority, separation where practical, documented approvals, reliable reporting and a way to escalate problems.

For a smaller company, the first control layer can be simple:

• a monthly management pack with actuals, budget, cash and key risks;
• approval limits for purchasing, payments, discounts, borrowing and related-party transactions;
• two-person review for sensitive payments and changes to master data;
• a record of decisions, not only conversations in private messaging;
• a process for reporting incidents, conflicts of interest and missed obligations.

The OECD due diligence guidance frames responsible due diligence as a cycle: embed expectations in management systems, identify risks, prevent or mitigate them, track results, communicate and provide remedy where appropriate. That is a useful discipline for an SME even when the funder’s form uses different labels.

5. They check the business around the numbers

Revenue is not the same as a dependable business. A funder will want to understand how revenue is created and what could interrupt it.

Prepare evidence for these questions:

• How concentrated are your largest customers and suppliers?
• Which contracts renew, and which can be cancelled without notice?
• What licences, tax registrations, permits or sector approvals are required?
• What happens if a key supplier raises prices, stops delivering or changes terms?
• Which claims in the pitch depend on an assumption that has not yet been tested?
• What social, environmental, safeguarding, data or compliance risks attach to the use of funds?

Do not hide concentration or dependency. Explain it, quantify it, name the mitigation and state what evidence will show progress. A known risk with an owner is easier to discuss than a “surprise” discovered in a spreadsheet.

The readiness pack to build before you need it

Create a small, controlled data room rather than an unstructured archive. Use folders that match how a funder thinks:

1. Corporate: registration, ownership, directors, governance documents and organisation chart.
2. Finance: accounts, bank statements, tax records, debt schedule, management accounts, budget and cash-flow forecast.
3. Commercial: customer concentration, top contracts, pipeline, pricing logic, supplier terms and renewal dates.
4. Operations: process maps, systems, stock or delivery records, project controls, business continuity and key-person map.
5. People: leadership roles, critical skills, employment obligations, succession actions and advisers.
6. Risk and impact: licences, insurance, litigation, compliance, environmental and social risks, and the mitigation register.

Every file should have an owner, a date and a short description. If two documents disagree, keep both if the difference matters, explain it in a reconciliation note and state which version is current. Do not “clean” history by silently replacing evidence.

A 90-day operational due diligence plan

Days 1–30: find the contradictions. Reconcile sales, cash, debt, tax, receivables and the funding model. List every gap without trying to solve all of them at once.

Days 31–60: assign ownership. Put an owner and deadline against each gap. Document the five processes that currently live in one person’s head. Introduce a monthly pack and basic approval limits.

Days 61–90: rehearse the questions. Ask someone outside the daily operation to review the pack. Let them request evidence, challenge assumptions and follow a number back to its source. Fix what they cannot find.

That rehearsal changes the tone of funding conversations. You can say what is proven, what is estimated, what is still missing and what you are doing about it. That is leadership, not weakness.

What to do when the funder finds a gap

Do not improvise a confident answer. Classify the gap:

• Missing: the record should exist but has not been assembled.
• Unreconciled: two records exist but do not agree.
• Unclear: the record exists but its meaning, owner or method is not clear.
• Real risk: the issue is genuine and needs mitigation, funding conditions or a change in scope.

Then give the funder a dated action, an owner and the evidence that will close it. A diligence process is a conversation about risk allocation. It becomes difficult when the business makes the funder discover the risk alone.

Funding is won before the funding meeting

The quiet work is not glamorous: reconciliations, shared folders, approval limits, customer records, written processes, clean contracts and a monthly view of cash. It is also where credibility is built.

A funder is not only asking whether the business can grow. They are asking whether they can understand what is happening after capital arrives. Make the answer visible before you need the money, and due diligence stops being an ambush. It becomes the prepared conversation your pitch promised.