This article is a continuation of Growth Strategy: How to Increase Value Without Falling into a Debt Trap .

The more structured and transparent the business is, the more appealing it is to investors. And better appeal translates into better deal terms for the founder.

II. Operational track

While the strategic track shows investors the founder’s development vision and the future of the company, the operational track addresses another question — how capable is the company of bringing this vision to life and scaling successfully?

Investors expect to see not only attractive figures and a convincing strategy, but also confirmation that the company ownership structure is transparent, its financial and tax reporting systems meet at least the minimum investor requirements, asset titles and contractual relations with counterparties and employees are properly documented, and that the business complies with licensing and regulatory requirements.

For a business owner, the operational track may seem like “routine,” since the company is already operational and generating profit. Yet it is precisely the transparency of the corporate structure, the reliability of processes, and the maturity of the management team that build investor trust. A simple rule applies: higher level of business readiness for future investor due diligence means smaller discounts to valuation after investor due diligence. And that, in turn, means better deal terms for the founder.

The operational track is the foundation on which strategy rests. If this foundation is unstable, even the most impressive investment presentation will not convince investors. If it is solid, the company gains a competitive advantage in negotiations: investors see a business ready for scaling, with predictable processes and risk controls.

• Corporate structure and transparency
• Financial and management reporting
• Legal integrity and regulatory compliance
• Management system
• Business processes and digitalization
• Top management and talent management
• Technology and innovation
• ESG and reputation

Preparing the company across each component requires time and attention from the founder. The outcome of this process will be elimination of “red flags,” improved transparency, and better manageability of business before negotiations with investors even kickstart.

Question: “How transparent and reliable is the corporate structure?”

• Corporate Structure and Transparency.
  Success in bringing in an investor requires a transparent ownership structure. All shareholders must be properly documented, their rights fixed, and ownership of shares reflected in relevant official registries.

• Legal integrity of ownership of shares:
  all shares are properly documented and recorded in the Unified State Register of Legal Entities or the shareholder register; no disputed transactions, undocumented transfers of rights, or informal shareholder agreements exist;
• Transparency of ultimate beneficiaries:
  full disclosure of ultimate owners; the structure avoids “excessive complexity” created to conceal real shareholders;
• Optimization of corporate structure for investors:
  the corporate form (Joint Stock Company or Limited Liability Company, including the possibility of option programs) and the tax structure must align with capital raising goals; charter documents and corporate governance provisions must be up to date.
• Holding structuring:
  a company organized as a holding must be streamlined: levels of ownership are clearly defined, no excessive chains or offshore “layers” exist; the holding is structured to avoid unnecessary transaction costs and ensure transparency of control in legal entities.

Question: “How reliable are the financial and management reports?”

• Financial and Management Reporting.
  The quality of financial and management accounting and reporting is one of the key factors defining investor confidence in the company, its top management, and owners. Even the strongest growth strategy loses credibility if the company does not maintain accurate, comparable, and transparent reporting.

• Financial statements under Russian Accounting Standards and/or IFRS, and
• Management reporting with unified principles for recognizing revenues, expenses, and cash flows, closely aligned with financial statements.

• Financial Reporting:
  The company prepares financial statements under unified standards (Russian Accounting Standards or IFRS), accurately reflecting all operations with no hidden or off-balance-sheet items. Responsibility for collecting and recording financial data, as well as document management procedures, is formalized in internal regulations;
• Management Reporting:
  The company maintains management reporting on a regular and detailed basis, closely aligned with financial reporting. It includes analytics by segments, regions, and clients, enabling effective performance monitoring. Responsibilities for data collection and reporting, along with document management, are also fixed in internal regulations;
• Quality of Historical Data:
  The company can provide investors with reliable financial and management data for at least the past 3 years, backed by supporting documents. It is also capable of delivering analytical breakdowns by business segments, regions, client groups, and other factors, highlighting the reasons behind changes in sales, EBITDA, net profit, margins, and capital expenditures;
• Tax Matters and Risk Minimization:
  The company properly maintains tax accounting, fulfills obligations to the tax authorities, applies tax incentives, and ensures documentation quality for intragroup transactions. No tax disputes exist.

Question: “Are there any legal or regulatory risks in the company that could lead to a decline in sales or future losses?”

• Legal Integrity and Regulatory Compliance.
  Legal transparency demonstrates that the business complies with applicable laws and is ready for institutional partnership. Errors in asset titles, non-transparent contracts, and non-compliance with regulatory requirements constitute “red flags” during Due Diligence and often lead to a lower company valuation or outright exit of the investor from the deal process.

• Registration of ownership rights to assets:
  the titles to real estate, land plots, equipment, patents, trademarks, and licenses are duly registered and confirmed in accordance with law; no disputed transactions or unregistered transfers of rights exist;
• Contractual Framework:
  transparent and legally sound employment agreements are signed with employees, including top management; long-term and reliable contracts with clients and suppliers are in place, with exclusion of unusual and non-customary clauses (unilateral termination, excessive penalties);
• Licenses and Regulatory Requirements:
  all licenses and permits necessary for operations are obtained and kept up to date; compliance with industry standards and regulations is confirmed;
• Compliance and Corporate Governance:
  internal control procedures and policies are implemented to ensure compliance with labor, tax, antitrust, and environmental legislation; anti-corruption practices and personal data protection policies are established and enforced; all management body decisions are documented in accordance with corporate documents and applicable law.

Question: “Is management system capable of ensuring strategy execution regardless of the owner’s personal involvement?”

• Management System.
  An established management system demonstrates to investors that business can operate predictably and deliver on plans without the owner’s constant involvement. The company is able to achieve declared goals thanks to structured processes, clear role1 distribution, and disciplined execution.

• Organizational structure:
  The company builds an effective organizational structure with clearly distributed and documented roles and areas of responsibility, along with transparent reporting lines. Duplication of functions is avoided while ensuring full coverage of all activities required for the stable operation and development of the business model;
• Decision-Making System:
  The company has a formalized and transparent system for making strategic and operational decisions. It distributes authority between owners, the board of directors, and management, defines the procedures for preparing, discussing, and approving decisions, records them in minutes, and assigns responsibility for execution;
• Strategy Execution Mechanism:
  The company breaks down strategic goals into intermediate goals and tasks, sets KPIs for departments and employees, and conducts regular monitoring and adjustment to ensure objectives are achieved;
• KPIs and Management Incentives:
  A KPI system is implemented that links managers’ compensation to financial and strategic results, ensuring alignment of interests between owners and the management team;
• Internal Control and Risk Management:
  The company formalizes control procedures, including authority limits, approval processes, and independent reviews. Key risks are documented and monitored through a risk register and regular reporting;
• Board of Directors / Advisory Board:
  The company establishes a board of directors or an advisory board that supports strategic decision-making, incorporates diverse perspectives, and separates the functions of ownership from management.

How to prepare a company for successful equity raising? Operational track. Part 2