As Zimbabwe opens for business, local companies will be looking to attract investment into their businesses in the form of equity or capital. The capital markets are increasingly becoming sophisticated and the number of businesses keen for capital injections far outstrip the available lenders or investors. As such, competition for funding is extremely high, regardless of whether the businesses that seeks capital are small medium or large.
Having a good business plan, business model and good balance sheet (though important) is no longer enough to woo potential investors. Potential investors, such as commercial banks, private equity firms or Development Finance Institutions (DFIs) carry out due diligence investigations on businesses before committing funds. The due diligence report informs the decision whether or to invest or not.
Manokore Attorneys, on a regular basis conduct such due diligence exercises on a wide variety of Zimbabwean entities seeking to source foreign funding from international investors.
Our experience has taught us that funding institutions are not only looking for businesses with potential, rather, they also require proof that businesses are financially viable, compliant with laws and exercise good corporate governance. Therefore, businesses that seek to lure critical foreign investment must ensure that they keep good records of the following:
- Debt exposure of the business;
- Corporate structure and evidence of good corporate governance practices;
- Evidence of regulatory compliance;
- Human resources – including size of workforce and labour contracts;
- Insurance policies;
- Business’ property portfolio;
- Pending claims or litigation against the business; and
- Regular audited financial statements.
Although many businesses leaders in Zimbabwe, tend to believe that keeping good regulatory and compliance practices is cumbersome and expensive – the value addition to the business is worth the time spent, and expenses incurred. Ultimately a good business can fail to attract much needed capital for the simple fact it has not passed the checklist which funders’ use when analysing the credit-worthiness of the business, a key component of that being that the business is fully compliant with all regulatory obligations, and does not have any pending regulatory claims which may affect its on-going operations and viability.