Raising Capital: A Manufacturer's Financial Readiness Checklist

Before you raise capital, get the financials, the forecast and the paperwork in order. For an established manufacturer, raising capital usually means a bigger bank line, an equipment loan, a refinancing, a minority partner or the first steps toward a sale. The checklist is similar for all of them. What changes is how deep each item goes.

This post is the checklist. Several items link to fuller posts if you want the detail. I'd go through it with your controller or finance lead and mark each item done, partly done or not started. The gaps tell you where to spend the next few months.

Why does financial readiness matter before raising capital?

The lender or investor will ask for most of this anyway. If you have it ready, the process moves faster and you keep control of the story. If you don't, they find the gaps on their schedule, and gaps turn into tighter terms or a lower price.

Readiness also tells you something. Sometimes working through the list shows you need less outside money than you thought. Faster collections or a smaller inventory can free up cash that was sitting in the business.

Is the checklist different for debt and equity?

The base is the same. The emphasis shifts.

Area	Bank or lender	Equity investor or buyer
Main question	Can you pay it back?	What is it worth and where is it going?
Financials	Recent statements, often reviewed or audited	Three years plus a quality of earnings review
Focus	Cash flow, collateral, covenants	Adjusted earnings, growth, risk
Forecast	12 to 24 months, covenant tests	Three to five years with scenarios
Ownership	Personal guarantees	Cap table, buy-sell, control rights

Our post on debt vs. equity for manufacturers covers which one fits which situation.

Step 1: Are your financial statements ready?

• Two to three years of annual financial statements on an accrual basis.
• Monthly financials for the current year, closed within a few weeks of month-end.
• A P&L with cost of goods split into material, labor and overhead.
• A balance sheet where every account ties to support.
• A cash flow statement, not just a P&L and balance sheet.
• Reviewed or audited statements if the lender requires them.

If several of these are missing, start with a cleanup. Our post on financial cleanups before financing walks through it.

Step 2: Is your accounting setup strong enough?

• A documented monthly close with reconciliations.
• Inventory counted on a schedule, by cycle counts or a full count, and tied to the books.
• A costing method you can explain, standard or actual.
• Separation of duties for cash, payables and payroll.
• An accounting or ERP system that handles inventory properly.

Step 3: Do you have a forecast and financial model?

• A three-statement model that starts from your actual balance sheet.
• Revenue built from customers, products, volume and price.
• A capacity check against your machines and people.
• Base, downside and upside cases.
• Covenant tests in each case if you're borrowing.

Our post on what lenders and investors want in a financial model covers each of these.

Step 4: Do you have a cash flow plan?

• A 13-week cash flow forecast, updated weekly.
• Receivables aging with a plan for anything past due.
• A borrowing base calculation if you have an asset-based line.
• A view of when growth will need more working capital.

Here's an illustrative borrowing base. Many asset-based lines lend a percentage of eligible receivables and inventory. The rates below are for illustration only. Your loan agreement sets the real ones.

Collateral (illustrative)	Eligible amount	Advance rate	Availability
Receivables under 90 days	$1,200,000	80%	$960,000
Raw material inventory	$800,000	50%	$400,000
Total			$1,360,000

If the line limit is $1.5 million but the borrowing base only supports $1.36 million, you can't draw the full line. Knowing this number before you ask for a bigger line saves an awkward conversation. Our cash flow management work keeps this updated.

Step 5: Which numbers should you be tracking?

A lender or investor will ask about a short list of measures. Have them ready for the last two or three years, by month if you can.

• Gross margin, overall and by product line or customer.
• Days sales outstanding, or how fast customers pay.
• Inventory turns.
• Sales by customer, with your top five as a share of total.
• Backlog or open orders.
• Capacity used on key equipment.
• Scrap or rework, if it's material to cost.

Step 6: Is your cost structure documented?

Know which costs move with volume and which don't. Know your break-even sales level. Know what a 10% drop in volume does to profit. A lender will ask some version of these questions, and a buyer will ask all of them.

Step 7: Is your capital structure clear?

• A debt schedule with every loan, rate, payment, maturity and covenant.
• Equipment leases listed, with terms.
• Personal guarantees listed.
• Related-party items, like the owner's building, documented with a lease at market rent.
• A current ownership list, or cap table, and any equity promises made to key people.

If you've promised equity or bonuses tied to value, get them in writing before an investor asks. Our post on allocating equity in a manufacturing company covers the options.

Step 8: Are tax and legal items in order?

• Federal and state income tax returns filed and current.
• Payroll tax filings current and tied to the books.
• Sales and use tax filings current, with exemption certificates on file.
• Entity documents: operating agreement or bylaws, and a buy-sell agreement.
• Key customer and supplier contracts, and whether they can be assigned to a new owner.
• Environmental permits and any open compliance issues.

Your entity type can matter for equity investors in particular. Our post on LLC vs. corporation for manufacturers explains why. This section is general information, not tax or legal advice. Work with your CPA and attorney on the specifics. We coordinate with them as part of our work with your CPA.

Step 9: Is your due diligence folder ready?

Put these in one organized folder before you start talking to anyone:

• Three years of financial statements and tax returns.
• Current year monthly financials.
• Receivables and payables agings.
• Inventory count and reconciliation.
• Fixed asset register and equipment list with condition.
• Debt and lease documents.
• The financial model and assumptions.
• Adjustments list for owner and one-time items, with support.
• Customer list with sales by year.

Step 10: Do you have a clear use of funds?

Say exactly where the money goes and what it produces. "$1.2 million for two new machines that add 6,000 hours of capacity, supported by a signed program from an existing customer" is a plan. "Growth capital" is not. Our manufacturing capital planning work is built around this.

Step 11: Can you tell the story with numbers?

Be ready to explain, in a few minutes, why sales and margins moved the way they did over the last three years. A good year, a bad year, a lost customer, a price increase. Tie each one to the numbers. If you can't explain a swing, the reader will assume the worst.

What red flags scare lenders and investors away?

• Financials that are months behind.
• Inventory that hasn't been counted in a year or more.
• A forecast with no link to past results.
• Past due tax filings.
• One customer driving a large share of sales with no contract.
• An owner who is the only person who knows how things work.

Our post on the traits buyers and investors want in a manufacturer covers the business side of this list.

Step 12: Should you get outside help?

If your finance team is already stretched, raising capital on top of the daily work is hard. Another option is outside help for the preparation, then handing the ongoing work back. A fractional CFO can build the model, prepare the lender package and sit in the meetings. Our post on CFO leadership in securing bank financing covers that role.

What is the final review before you talk to lenders or investors?

Before the first meeting, I'd check three things. Do the financials, the model and the folder all show the same numbers? Can you answer the five questions you most hope they won't ask? And do you know your walk-away terms?

If you'd like help working through this checklist, that's part of our fractional CFO work for manufacturers.

Frequently Asked Questions

How long does it take to get ready to raise capital?

It depends on where your books are. If they're clean, a few weeks. If they need a cleanup, plan on several months before you approach anyone.

Do I need audited financials to get a bank loan?

Not always. Smaller loans often need only reviewed or compiled statements. Larger lines and some asset-based lenders may require an audit.

What is a borrowing base?

It's the amount an asset-based lender will let you borrow, set as a percentage of eligible receivables and inventory.

What's the first thing to fix before raising capital?

Usually the books, especially inventory. Every other item on the list depends on reliable numbers.

Should I raise debt or equity?

If cash flow can comfortably cover the payments, debt is usually cheaper and keeps ownership with you. Equity fits when the risk or amount is too large for debt, or when you want a partner.